European Central Bank President Jean-Claude Trichet said today the ECB had no bias for eurozone interest rates, and he was not preparing financial markets for either an increase or a cut in borrowing costs.
He said the ECB Governing Council judged the current level of rates to be appropriate and stressed the central bank, which sets monetary policy for the dozen countries that share the euro, did not have any monetary policy bias.
"We do not have a bias. I have said I was not preparing the markets for a decrease in rates. I am not preparing them for an increase. We remain vigilant, realistic, and pragmatic," Mr Trichet wrote in an article published in France's Le Monde newspaper.
The ECB has kept its key refinancing rate at 2.0 per cent since June 2003. Mr Trichet said a good monetary policy was necessary but not sufficient. "A healthy budget policy, respecting the Stability and Growth Pact (on budget discipline) is also indispensable."
He said reforms also played a decisive role in reinforcing competitiveness, raising the potential rate of economic growth and stimulating job creation.
"Beyond that, there is a key word in Europe today - confidence. The confidence of households and businesses must be preserved and reinforced."
Mr Trichet said the ECB could be counted on to maintain households' purchasing power and insisted it would be counterproductive to raise the ECB's inflation goal, which aims to keep euro zone inflation close to but below 2 per cent.
"This recommendation (to raise the ECB inflation goal) is a boomerang," he said, adding any such move would only end up undermining households' confidence and lead to higher market rates as inflation expectations would move upwards.