ECB's Trichet says 'very close monitoring' of inflation risks essential UPDATE

ECB's Trichet says 'very close monitoring' of inflation risks essential UPDATE

	Published : Thu, 11 Jan 2007 15:44 By : Agencies Print this Story

(Adds more comments from Trichet's introductory statement)

FRANKFURT (AFX) - European Central Bank president Jean-Claude Trichet said the ECB must continue to monitor all euro zone inflation risks very closely and will act in a 'firm and timely manner' to ensure price stability.

In his introductory statement to the ECB's monthly news conference, Trichet said have ry close monitoring of all developments is of the essence so that risks to price stability over the medium term do not materialise'.

'Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted,' he said.

But significantly, he did not reintroduce a commitment to exercise 'vigilance' on inflation risks in the introductory statement. Such a phrase would have been seen as a signal that the ECB is preparing to raise rates again at its next monetary policy meeting on Feb 8.

The ECB left rates unchanged at today's council meeting, after hiking its main refinancing rate to 3.50 pct from 3.25 pct at its last monetary policy meeting on Dec 7.

Trichet said interest rates are still at 'low levels' and that the central bank's monetary policy 'continues to be accommodative'.

He said recent data suggests that the euro zone's 'robust economic growth' has continued and that the labour market situation has improved further.

'Looking ahead, the medium-term outlook for economic activity continues to be favourable and the conditions remain for the euro area economy to grow solidly, at rates around potential,' he said.

Trichet said the risks to the ECB's 'broadly favourable' growth outlook over the coming years lie mainly on the downside.

The main risks relate to fears of a rise in protectionist pressures, the possibility of a renewed increase in oil prices, and concerns about possible disorderly developments due to global imbalances, he said.

He said the annual inflation rates are projected to hover around 2 pct over this year and in 2008.

The euro zone inflation outlook remains subject to upside risks, he said, adding that they stem from the stronger-than-anticipated pass-through of previous oil price increases, increases in administered prices and indirect taxes beyond those announced so far, and possible renewed oil price increases.

'More fundamentally, given the favourable momentum of real GDP growth over the past few quarters and positive labour market developments, wage dynamics could be stronger than currently expected,' he said.

Monetary and credit expansion are mains rapid', reflecting the low level of interest rates and the strengthening of economic activity in the euro zone, he said.

'Continued strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term,' Trichet said.

'Monetary developments therefore continue to require very careful monitoring, particularly against the background of improved economic conditions and continued strong property market developments in many parts of the euro area,' he said.

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