Thursday, September 4, 2008

No Change To Euro Interest Rate

The European Central Bank has announced that it has left its key interest rate unchanged at 4.25%.

ECB President Jean-Claude Trichet conceded that the economy has slowed but reiterated that a spike in inflation must be avoided.

"The latest economic data confirms a weakening of real GDP growth in mid-08; this reflects partly an expected economic reaction to strong growth seen in the first quarter as well as dampening economic effects including direct and indirect effects from high commodity prices," Trichet said.

"In this environment it remains imperative that we avoid broad based second round effects in price and wage setting. In full accordance with our mandate we emphasise that maintaining price stability in the medium term is our primary objective," he added.

The euro zone economy's weakness in the second and third quarters of this year has been anticipated by the European Central Bank, Trichet said. "We will have a progressive recovery" after the third quarter, he added.

Given the fact that the ECB is not cutting rates, it is pretty impossible to see the "progressive recovery" after the third quarter that Trichet expects. It's not going to happen.

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