As expected, the European Central Bank has left interest rates unchanged at 3%. However economists are convinced there will be another increase, probably in October, as ECB President Jean-Claude Trichet gave a broad hint. During his news conference he used the phrase “vigilance” over inflationary risks; previously that has been a signal of a rate rise to come.
Trichet said: “It is essential that inflation expectations remain firmly anchored at levels consistent with price stability. Accordingly, strong vigilance is warranted in order that risks to price stability are contained.” The decision to hold rates unchanged this time came despite promising second-quarter economic growth in the region.
The ECB strategy comes as consumer inflation eased slightly in Italy and Germany and retail sales weakened in Germany. The bank also raised its forecasts for economic growth and inflation in the twelve countries using the euro. It is now predicting that the euro zone economy will expand about 2.5% for the whole of 2006 and 2.1% next year.