"Strongly Vigilant" ECB Stays Put - BoE too

Thursday, October 06, 2005

The European Central Bank (ECB) and the Bank of England (Boe) both announced on Thursday that they will leave lading interest rates unchanged. Find the press releases here and here. Both central banks appeared uncomfortable with the inflationary outlook caused by high energy prices and the ECB noted that it sees no significant reversal of the situation because of continuing high global demand for oil.
ECB president Jean-Claude Trichet warned in his introductory statement to a webcasted press conference that energy prices pose a severe risk to price stability. "Strong vigilance with regard to upside risks to price stability is warranted. It is essential that the increase in the current inflation rate does not translate into higher underlying inflationary pressures in the euro area," he said. Trichet also cautioned of high money supply growth which now exceeds 8 % and seems to be driven mainly by mortgage loans. "Strong monetary and credit growth, in the context of an already ample liquidity situation in the euro area, points to risks to price stability over medium to longer horizons," Trichet pointed to inflationary dangers on the horizon.
Both central banks are caught in a web of slowing growth and rising inflation.
"According to Eurostat's flash estimate, annual HICP inflation was 2.5% in September, compared with 2.2% in the previous two months, and it is likely that HICP inflation will remain elevated in the short term," Trichet said and urged governments to streamline their fiscal policies.


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