European Central Bank president Jean-Claude Trichet said today the bank would do everything possible to restore confidence and prosperity.
“Public authorities, executive branches, and central banks must do all they can to restore, preserve and foster confidence among households and corporations in order to pave the way for sustainable prosperity,” Mr Trichet said in a speech in Tokyo today.
“This calls for a measured response to changing conditions.” The ECB’s 22-member Governing Council is divided over not only how low to cut borrowing costs but also whether to adopt unconventional monetary policy tools such as the purchase of debt assets to help revive its ailing 16-nation economy.
The bank this month cut its benchmark less than economists had forecast, by a quarter point to 1.25 per cent, and delayed a decision on new policy tools until its next meeting in May.
“As regards the possible further additional non-standard measures, I have been very clear,” Mr Trichet said.
“We will decide” at the next policy meeting, he said. “It is important not to create or encourage expectations” about what will be decided at that meeting, Mr Trichet said.
“Be sure that what we will decide will fully take into account the financing structure of the euro area economy and will be fully in line with our medium-term strategy.”
Mr Trichet said that any non-standard measures need to be implemented with the co-operation of European banks.
Mr Trichet said the Governing Council was “very, very united,” adding that its members were not the representatives of countries but acted on behalf of the 329 million people in the euro region.
“Any ambiguity in our medium-term policy direction would delay the return of sustainable prosperity, because that would undermine confidence,” Mr Trichet said.
While Mr Trichet has signalled a quarter-point interest rate cut is likely, Germany’s Axel Weber said on April 15th he’s against taking the benchmark rate below 1 per cent and would prefer not to buy corporate debt.
By contrast, council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have both indicated they may support cutting the key rate below 1 per cent and purchasing debt securities to fight the risk of deflation.
ECB vice president Lucas Papademos and council member Ewald Nowotny have also spoken in support of asset purchases.
Mr Trichet said that expectations about inflation were stable. “Long-tern inflation expectations in the euro area, whether based on surveys or extracted from financial indicators, have been and continue to be firmly anchored at levels consistent with our definition of price stability,” he said.
Inflation in the euro region slowed to 0.6 per cent in March, a record low. The ECB expects inflation to average 0.4 per cent this year, according to its March projections.
Bloomberg