Risks to eurozone has worsened: Jean-Claude Trichet, President, ECB
Benchmark rates unchanged at 1.5%; the European Central Bank cuts 2011 growth forecast
By Bloomberg | Updated:
FRANKFURT: The European Central Bank (ECB) president Jean-Claude Trichet said threats to the euro region have worsened and inflation risks have eased, giving officials the option to take further action should the debt crisis worsen.
The economy faces “particularly high uncertainty and intensified downside risks,” Trichet said at a press conference in Frankfurt on Thursday after the ECB left its benchmark rate at 1.5%.
While monetary policy is still “accommodative”, financing conditions have worsened in parts of the euro region and the ECB stands ready to pump more cash into markets should that be required, he said.
The spreading debt crisis is sapping confidence in Europe’s financial institutions, driving up market borrowing costs and forcing the ECB to widen its bond purchase programme to Italy and Spain. The ECB also cut its growth forecasts for this year and next and abandoned its warning about looming inflation threats.
“The situation has deteriorated so much that they should throw the kitchen sink at it,” said Julian Callow, chief European economist at Barclays Capital in London. The ECB could cut rates, offer banks unlimited liquidity for upto a year or deploy a combination of those measures, he said.
Thursday’s comments “went further in a ‘dovish’ direction than we had expected”. The ECB on Thursday cut its 2011 growth forecast to 1.6% from 1.9%. It also cut 2012 growth forecast to 1.3% from 1.7%.
Inflation forecasts were left unchanged at 2.6% for 2011 and 1.7% for next year. With Deutsche Bank CEO Josef Ackermann saying conditions are reminiscent of those at the depths of the global credit crisis in 2008, Trichet signalled the ECB is prepared to deploy more measures to help cash-strapped banks.
“We stand ready to provide liquidity as we have done in the past, taking into account the needs of the banking
sector,” he said.
The economy faces “particularly high uncertainty and intensified downside risks,” Trichet said at a press conference in Frankfurt on Thursday after the ECB left its benchmark rate at 1.5%.
While monetary policy is still “accommodative”, financing conditions have worsened in parts of the euro region and the ECB stands ready to pump more cash into markets should that be required, he said.
The spreading debt crisis is sapping confidence in Europe’s financial institutions, driving up market borrowing costs and forcing the ECB to widen its bond purchase programme to Italy and Spain. The ECB also cut its growth forecasts for this year and next and abandoned its warning about looming inflation threats.
“The situation has deteriorated so much that they should throw the kitchen sink at it,” said Julian Callow, chief European economist at Barclays Capital in London. The ECB could cut rates, offer banks unlimited liquidity for upto a year or deploy a combination of those measures, he said.
Thursday’s comments “went further in a ‘dovish’ direction than we had expected”. The ECB on Thursday cut its 2011 growth forecast to 1.6% from 1.9%. It also cut 2012 growth forecast to 1.3% from 1.7%.
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Inflation forecasts were left unchanged at 2.6% for 2011 and 1.7% for next year. With Deutsche Bank CEO Josef Ackermann saying conditions are reminiscent of those at the depths of the global credit crisis in 2008, Trichet signalled the ECB is prepared to deploy more measures to help cash-strapped banks.
“We stand ready to provide liquidity as we have done in the past, taking into account the needs of the banking
sector,” he said.
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