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Friday, December 05, 2003

Trichet Fails to Lower Rates

Well some of the speculation is now over. Trichet does not seem to be shaping up as a bold and imaginative head of the ECB. What a surprise! Personally, and if given the opportunity, I would have droppoed the rate to the 1% current US one. At a stroke show you mean business, put a little bit of a brake on the euro rise, and try to give some protection to Germany. Still, it seems to be hard to see all this right now. He does however acknowledge that inflation will already be coming down next year. Not with too much of a bump I hope.

The European Central Bank on Thursday signalled that interest rates were likely to be kept at 2 per cent for several months, but warned that the eurozone's longer-term growth prospects might be undermined by the US's ballooning deficits.

Speaking after the bank left rates on hold for the sixth month running, Jean Claude Trichet, ECB president, said the bank remained concerned about the "sustainability of global economic growth" and the risk it might be "undermined by external imbalances" in some economies - a reference to the US.

Economists fear the unwinding of the US's huge current account deficit will extend the dollar's recent fall against the euro, stifling the fragile export-led recovery that has just begun in the 12-nation economic bloc.

On Thursday, the euro again rose to record highs against the US currency for the fifth day in succession, hitting $1.215 in early US trading.

Mr Trichet said the eurozone upturn was under way and would gradually pick up speed. However, he made it clear that the outlook for inflation remained benign. Inflation would hover around 2 per cent - the bank's price stability ceiling - over coming months but decline next year, he said.
Source: Financial Times

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