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ECB's Trichet Leaves Options Open on Rates

European Central Bank President Jean-Claude Trichet said on Monday his remarks on August 2 were made before the current market turbulence, leaving the options open on whether the ECB will raise its key interest rate at a meeting next week.

Investors have been closely watching Trichet's speech for clues on whether the ECB will go ahead with a planned interest rate hike at its September 6 meeting or will postpone the rise until the financial turmoil eases.

"What I said on the 2nd of August was before the market turbulences," Trichet said at the end of a speech in Budapest for the annual congress of the European Economic Association. "The next assessment is to be made on September 6."

He said that all the elements of the economy, as well as the risks, will be assessed and the ECB will take "the appropriate steps" at that moment.

Analysts said Trichet's remarks were too vague to give a clear indication to the markets.

Tough Call

"I think the options are still open and it's impossible to call on what they will do," Holger Fahrinkrug, Chief Economist at West LB, told "European Closing Bell."

But he pointed to the ECB's main goal, keeping inflation in check. "If they decide not to move, I think they will have to give an explanation in terms of what has changed in terms of the real economy and inflation," Fahrinkrug added.

Trichet also said productivity growth has increased gradually in the euro-zone over the past two years, but was still "disappointing" compared with more resilient growth in the U.S.

"In the services sector it has not improved as much, even if it too is growing slightly," Triched said in a pre-prepared speech. He also said it was paramount for central banks to anchor inflation expectations, and that present euro area growth developments were favourable.

The euro fell after Trichet's remarks, which some traders took as a hint that the ECB's main rate will remain unchanged next week.

Contact Europe: Economy

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