Any thoughts that the European Central Bank might copy the US Federal Reserve and sharply cut interest rates have been dashed by ECB President Jean-Claude Trichet. He told the European Parliament the bank continues to focus on fighting inflation in the face of what he called a very significant, ongoing market correction: “In all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility, in already highly volatile markets.’‘
Trichet did not discuss the US Federal Reserve’s surprise decision to cut its main interest rate by 0.75% to 3.5%. The largest cut in more than 23 years was made by Fed Chairman Ben Bernake and his policymakers one week ahead of their scheduled meeting, underscoring the US central bank’s concern about the recession risks for the US economy.
ECB board members continue to stress that economic fundamentals in Europe remain sound, but some analysts are now forecasting a rate cut in the summer rather than the autumn. The ECB meets next on 7 February.