ECB Says Rates Appropriate, As Inflation To Remain Near 1.0%

The European Central Bank left their benchmark rate at 1.00%, determining that rates remain appropriate as risks remain broadly balance. President Trichet in the post-release press conference stated that inflation expectations remained anchored for the medium and long-term with the committee forecasting that rates will be around 1.0% in the near-term. Policy makers will decide in March on further exit steps which will be dependent on the sustainability of the recovery. The central bank is expecting that unemployment will continue to increase “somewhat” further as the economy is growing at a moderate pace. The region in benefitting from a replenishing of inventories and government stimulus which are both expected to dissipate going forward. Therefore, without a rebound in consumer spending companies will find it difficult to maintain profits which will make it prohibitive for them to hire. Indeed, Euro-zone retail sales were flat in December when retailers are expected to benefit from Holiday shopping, signaling that consumers are continuing to retrench. Trichet fielded questions on Greece’s troubles, stating that he is confident that they will take all steps to cut deficit, and it is “absolutely crucial” that they reach the goals that they have fixed. Concerns are that the budget troubles in Greece, Portugal, Ireland and Spain threaten the entire economic region. The ECB leader would state that “all countries” have to respect EU deficit rules and take fiscal action. The Euro saw little reaction following the press conference but has started to trade heavy on broader risk aversion.