ECB says monetary policy still accommodative, monitoring inflation risks

ECB says monetary policy still accommodative, monitoring inflation risks

	Published : Thu, 15 Mar 2007 10:18 By : Agencies Print this Story

FRANKFURT (AFX) - The European Central Bank said its monetary policy remains 'on the accommodative side' after last week's interest rate hike, which took its main rate to 3.75 pct.

'Given the favourable economic environment, the ECB's monetary policy continues to be on the accommodative side,' it said in its March monthly bulletin.

It said ECB rates are 'moderate' after last week's increase. It had described rates as 'low' before the rate hike.

But it said it will continue to monitor all inflation risks very closely and is ready to act 'in a firm and timely manner' to ensure price stability.

And it said the inflation outlook remains subject to upside risks.

The ECB singled out the possibility of inflationary wage deals as a particular focus of attention.

'Stronger than currently expected wage developments would pose significant upward risks to price stability, not least in view of the favourable momentum of real GDP growth observed over the past few quarters,' it said.

It said it will monitor the upcoming wage negotiations in euro zone countries very carefully.

Robust money and credit growth also point to upside risks to price stability over the medium to longer term.

The ECB said euro zone inflation is likely to ease during the spring and summer, rise again towards the end of the year and then hover around 2 pct, but it said it is focusing on medium-term inflation trends rather than short-term changes in the inflation rate which will partly reflect last year's swings in oil prices.

The central bank said the latest indicators suggest that economic growth has remained robust in the early part of 2007, and the medium-term outlook for economic activity remains favourable.

The bulletin editorial closely matches ECB president Jean-Claude Trichet's introductory statement to last week's ECB news conference.

steve.whitehouse@thomson.com

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