February 5, 2009 / 2:11 PM / 10 years ago

HIGHLIGHTS - Trichet comments after ECB holds rates at 2.0 pct

FRANKFURT (Reuters) - The following are comments by European Central Bank President Jean-Claude Trichet on Thursday after the Governing Council held interest rates steady at 2.0 percent, taking a widely-expected breather in monetary easing.


“We are in this period where we are ... doing something to see whether we are reviving the money market, that’s the way we are looking at it. We didn’t change anything but lowering the deposit facility because we have enlarged the corridor.”

“We will continue to look at it.

“What we have decided, you might remember, was to enlarge our corridor in order to help on the basis of the analysis that had been made, to help the reviving of the money market.

“What you are asking is for the exit from the present non-standard mode of action. These are pertinent questions.

“One of the main adverse factors is the absence of confidence. There is a generalised absence of confidence that is why we have to cope with exceptional difficulties.

“Part of the confidence that we have to recreate is relying upon the sentiment that in the medium to long term we are back on sustainable mode and sustainable pace. Of course we are reflecting on when we have the end of our current non-standard action.

“But at this stage they are necessary. But we know we have to get back to a normal mode, it is the same for governments’ fiscal policies.


“On the menu of options, if I may, after the recapitalisation, after the guarantees we see now the need in some circumstances or some cases the need for additional possible tools what you said, namely the possibility of purchasing or putting aside toxic assets.


“I must confess I don’t see such situation personally. I have no memory of having seen the MD mentioning that. I will look at it. But I can say that I don’t see that myself.


“First ... it is good that each government is responsible for its fiscal policy. It is in line with the Treaty, it is in line with what we had decided at the moment of the setting up of the euro area and it is something of course which is fully in line with the Stability and Growth pact and appropriate rule that we considered part of the overall framework of the EMU.

There are two potential questions. One is will treasuries issue joint bonds where they would be associated joint and several, or something like that... And there is another issue (as to) whether the commission itself, the EU itself, I responded to the first concept. I have to say that it seems to me you have to ask the question to governments. The council is not in favour of that to my knowledge, till now.

“This is a decision to be taken by government first. Second, in the present situation we have the EIB and it has the capacity to borrow on its own signature. You already have the instrument that could issue bonds. At the present time it is not a decision for the governing council.


“I hope that the price of oil will remain at a low level.” “We see (inflation) risks downward and we see risks upward and this is very very clear.”

“Regarding risk to price stability over the short term, any unexpected decline in commodity prices or stronger than expected turndown in the economic conditions could put downward pressure on inflation, whilst upside risks to inflation could materialise if falling commodity prices were to reverse and the economic pressures turn out to be stronger.


“For the fourth quarter of 08 we have reporting of a further tightening in net terms for the credit standards for the loans to households.

“For the first quarter of 2009, the banks expected a considerable decline in net tightening for all categories compared with the actual tightening in the fourth quarter in 2008. So we have observed some kind of stabilisation at a very high level of tightening in the fourth quarter of 08.


“We have a needle in our compass, which is very clear, less than two but close to two. And we will take the appropriate decision. I don’t exclude that we could decrease rates in our next meeting.

“We will see exactly what we have to do taking all into account...I would only say that it’s clear we were not in a sustainable mode, sustainable pace at the level of the global economy during the last years and it is not something which is new because we’ve said that a number of times.


“What I could qualify as non-standard set of decisions have augmented considerably — to say the least — our own risk taking because of the inflation of the size of the balance sheet.

“Again, we are not in the same universe as the other central banks. We each do what we judge appropriate.

“I do not exclude other possible non-standard measures.

“On the non-standard action, we are in a non-standard mode at the moment I am speaking since we engage in unlimited supply of liquidity from one week to six months through several windows. This is a mode which is non-standard.

“We are in a non-standard mode when we see the balance sheet of ECB, the Eurosystem augmenting very significantly. All this was not at all considered likely before the intensification of the crisis that we have experienced since mid-September, the beginning of October last year.

“We are excluding nothing and we have not pre-decided anything at this stage but we exclude nothing in terms of non-standard activity.”

“It means, intrinsically, that we could pretty well continue to engage in non-standard operations without having the zero rate decided before. We have no pre-commitment on anything. We are open.”


“We confirm that 2 percent is not the lowest level that we would have decided and secondly, zero interest rates at this moment is not something we could consider appropriate.

“We will see what we will do at our next meeting, we will have a lot more information, new data. At the next meeting we will have new staff projections.

“We’ll do whatever is necessary to ensure the solid anchoring of inflation expectations in line with our definition: less than 2 but close to 2 percent.

“We will look, in the next meeting, at the facts...and figures and take the appropriate decision.


“Zero interest rates, at the moment I am speaking, is not something that I would consider appropriate.

“There are a number of drawbacks related to zero interest rates and we trust at the moment I’m speaking that we should avoid them.


“We are in a very.... complex situation as everybody knows and the real economy has.... to cope with a number of other issues and contraints.


“In order to ensure that such measures effectively support a sustainable recovery it is of the utmost importance that they remain focussed and temporary in nature.

“However also owing to base effect stemming from past energy price developments inflation rates are expected to increase again in the second half of this year.

“Looking ahead, lower commodity prices and the prospect of weak demand confirm our assessment of mid January that inflationary pressures in the euro area are diminishing owing mainly to base effects stemming from the past behaviour of energy prices. Headline annual inflation rates are projected to decline further in the coming month, possibly reaching very low level at mid year.

“Weak demand confirms our assessments from mid-January that inflation pressures in the Euro-area are deminishing.

“Over time, the euro area should reap the benefit of the effects of significant policy measures over recent months to deal with the financial turmoil. They should help to restore trust in the financial system and to ease constraints on credit supply to companies and households.

“Reflecting the impact of the intensified and broadened financial market turmoil, the economic activity throughout the world including the euro area has weakened substantially.

“The euro area and its major trading partners are undergoing an extended period of significant economic downturn and that accordingly, both external and domestic inflationary pressures are diminishing.

“We continue to expect inflation rates in the euro area to be in line with price stability over the policy relevant medium term horizon thereby supporting the purchasing power of euro area households.

“The Governing Council will continue to keep inflation expectations firmly anchored in accordance with its definition of price stability.

“The level of uncertainty remains very high, accordingly we will continue to monitor all developments very closely.

“The overall risks to economic growth remain clearly on the downside.”

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