Trichet Signals ECB in No Rush to Increase Rates

European Central Bank President Jean- Claude Trichet said interest rates are “appropriate,” signaling the bank has no plans to tighten policy yet as Europe emerges from the deepest recession since World War II.

The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term,” Trichet told reporters after the ECB left its main rate at 1 percent today.

While Europe is pulling out of its economic slump, policy makers are concerned the rebound may falter if they tighten policy too soon. Expiring government rescue packages, tight lending conditions and rising unemployment may also weigh on the economy. The bank is flooding banks with cash in the hope they will lend it on to companies and households and get them to spend again.

The recovery is expected to be rather uneven,” Trichet said. It will be supported in the short term by temporary factors but will be hampered in the medium term by balance sheet issues at financial and non-financial institutions.”

Unlike the Federal Reserve and Bank of England who are pumping money directly into their economies through the purchase of government and corporate bonds, the ECB has focused on lubricating bank lending in an effort to rekindle growth.

Trichet Signals ECB in No Rush to Increase Rates, Bloomberg, ECB
10/8/2009 9:25:13 AM