Lagarde Calls Trichet's Rate Outlook `Encouraging'
French Finance Minister Christine Lagarde welcomed as “encouraging'' comments by European Central Bank President Jean-Claude Trichet this week playing down prospects of further interest-rate increases.
Speaking a day after French President Nicolas Sarkozy asked if it was “reasonable'' for the ECB to have raised its benchmark rate, Lagarde said it was vital European policy makers “be attentive to the economic growth situation.''
The ECB raised its benchmark rate to 4.25 percent, the highest in seven years, on July 3 after inflation accelerated to a 16-year high in the 15 euro nations. With growth slowing, Trichet today repeated he has “no bias'' on further moves.
“What seems encouraging to me are the comments of Trichet,'' Lagarde said in an interview with Bloomberg Television at an economic forum in Aix-en-Provence, southern France. “He has said clearly that with the rate as it is he thinks the goal of price stabilization can be attained.''
Sarkozy, who has repeatedly attacked the Frankfurt-based bank for focusing too much on inflation and not enough on growth, yesterday asked delegates at a Paris meeting of his Union for a Popular Movement party “if it was reasonable to raise rates while the Americans have rates at 2 percent.''
Fed, ECB Gap
The U.S. Federal Reserve has cut its key rate seven times since September to 2 percent in a bid to avert recession, while the ECB left its unchanged until the past week amid surging consumer prices. Lagarde today called the gap “considerable'' and blamed it for leaving the euro “overvalued'' against the dollar. The euro has climbed 8 percent against the dollar this year.
The comments of French officials carry greater weight after France on July 1 took over the presidency of the 27-nation European Union, meaning it will help shape the EU's agenda and policies for the rest of this year.
Speaking at the same forum as Lagarde, ECB President Jean- Claude Trichet today rebuffed the criticism of politicians and said the bank would do what is necessary to control prices and anchor inflation expectations.
“We're not pre-committed and will do what is necessary to ensure price stability,'' he said. “We have a mandate that was given to us by European democracies, of price stability.''
Still, Lagarde noted German Finance Minister Peer Steinbrueck's July 1 comment that the ECB should consider the effect on growth of higher interest rates. “I rejoice that my German counterpart, who was considered an apostle of the orthodoxy of monetary policy, also started believe that the risk to growth of too-high interest rates has to be taken into account,'' she said.