Trichet's rate-rise riddle unsolved

European Central Bank (ECB) president Mr Jean-Claude Trichet raised a laugh in Punchestown this weekend, so tortuous and qualified were his statements on interest rates, writes Cliff Taylor, Economics Editor

His latest comments will rekindle speculation that the ECB could yet cut interest rates again. But they come just a couple of days after Mr Trichet appeared to pour cold water on the prospect of just such a cut.

So just what is going on? The general message of a stream of recent statements from senior ECB figures seemed to be that interest rates would remain at current low levels for some time and could be cut further if economic indicators - and consumer spending in particular - did not pick up.

It appeared to be a clear communications initiative to pave the way for a possible rate cut in the months ahead.

Last Thursday, the markets were taken aback by the tone of the comments from Mr Trichet after the ECB council meeting. The conditions remained in place for the economic recovery to continue and strengthen over time, he said, and income growth should get consumers spending. Don't expect any rate cut, appeared to be the subtext.

At the weekend meeting in Punchestown, however, the tone had softened again. " Are interest rates fixed for a considerable period of time? No," the president said.

The ECB remained eager to incorporate all fresh information in its assessment of the stance of monetary policy. So a possible cut appears to be back on the agenda.

What are we to make of it all? It appears most unlikely that Mr Trichet was merely playing along with his finance minister hosts, many of whom want to see lower rates.

Perhaps the most likely scenario is that the ECB felt that the financial markets and media were exaggerating its original message. Hints that rates might fall again turned into expectations of an early cut, with some even anticipating a move last Thursday, Some dampening down was needed and this was delivered by Mr Trichet at the press conference after the council meeting.

However, again this may have been "over-interpreted" a bit by the markets and the media - who saw it as ruling out a cut completely - hence the softening of tone at Punchestown. Don't expect interest rates to go up for quite a long time, seems to be the message, but don't expect them to fall either, unless economic recovery does not gather pace. Though of course there is no chance of the ECB stating it as plainly as that.