ECB Policy Diverges Further From U.S. Course


The European Central Bank on Thursday widened its diverging course from the U.S. Federal Reserve by withholding further monetary stimulus amid Europe's economic recovery.

ECB President Jean-Claude Trichet told a news conference after the central bank's policy meeting that the central bank's remaining "nonstandard" monetary stimulus programs are for the long term and under constant re-assessment.

"All the nonstandard measures are fully consistent with our mandate and temporary in nature," Mr. Trichet said. "Accordingly, the governing council will monitor all developments very closely."

Mr. Trichet said it "isn't a normal situation" to have financial institutions addicted to special ECB funding. "We are reflecting permanently on what could be done," he said.

Earlier in the day the central bank for the 16-nation euro zone said its policy board decided to keep official interest rates unchanged, as expected.

The ECB president said in Frankfurt that while risks in the European economy remain, it has continued to show positive trends in the second half of the year.

"The positive underlying momentum remains in place, in line with previous expectations," Mr. Trichet said. "Some concerns remain on the re-emergence of financial tensions in certain markets."

Many trading partners, including Europe, worry about their exports being at a disadvantage, as well as the rising risk of new asset bubbles if the new cash flows into their markets.

After co-ordinating a massive stimulus to stem the financial crisis more than two years ago, the paths of the Fed and ECB continue to diverge sharply this year.

Mr. Trichet declined to comment on the Fed move, but said he doesn't believe the U.S. authorities are deliberately trying to steer the dollar lower to make U.S. exports competitive.

"I trust their statement that it is in the interest of the U.S. to have a strong dollar, and I share that view," Mr. Trichet told reporters.

The ECB's Governing Council has pulled some of its stimulus programs and is focusing on whether to wind up its remaining "nonstandard" policies.

Only two programs remain. One is the Securities Markets Program, under which the ECB has bought €63 billion of government bonds to keep a semblance of order in peripheral markets this year.


TradingEconomics.com, WSJ
11/4/2010 4:13:54 PM