Sat, May 07, 2011 - Page 10 News List

Europe’s central bank slows pace of interest rate hikes

AP, FRANKFURT, GERMANY

European Central Bank President Jean-Claude Trichet offered struggling Greece, Portugal and Ireland a little bit of relief on Thursday by signaling that the bank would not raise interest rates as fast as the markets had been expecting.

Though the bank left its key rate unchanged at 1.25 percent, as expected, at a meeting in Helsinki the euro suffered one of its worst days this year after Trichet signaled that another rate hike next month was not likely.

He said the bank would “monitor very closely” all risks to inflation, language that economists said indicated no rate increase at next month’s meeting.

Though an increase in July is still expected, the pause gives some breathing space to the eurozone’s three bailout victims, particularly to Greece as it tries to dispel fears that it will renege on its debt deals.

Trichet made it clear the bank is ready to move rates higher to quell inflation that is running above the bank’s goal of just under 2 percent, even though higher borrowing costs will heap more pressure on the eurozone’s three bailout economies.

However, the slower pace, as indicated yesterday, suggests the bank sees slightly more risk to Europe’s recovery.

Trichet said the risks to growth “remain broadly balanced in an atmosphere of considerable uncertainty.”

Asked if the pace of increases was slowing to help the indebted countries, Trichet said: “Absolutely not. We are responsible for price stability in the eurozone as a whole. We will continue to deliver price stability.”

He brushed aside questions about debt restructuring and said Greece would stick to its bailout agreement of spending cuts and reforms in return for emergency loans.

“We have a plan. We apply the plan. It’s[restructuring] not part of the plan,” he said.

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