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Trichet criticises ratings agencies, backs Portugal


Trichet criticises ratings agencies, backs Portugal


European Central Bank President Jean-Claude Trichet has joined the chorus of criticism of the role of ratings agencies in the global financial system.

That after the agency Moody’s downgraded Portugal’s debt to “junk” status. Trichet also offered help to Portugal committing to keep providing it with liquidity.

Trichet spoke as the ECB raised interest rate for the second time this year to 1.5 percent and signalled further hikes to come to tackle inflation – what the bank calls price stability.

He told reporters: “We do always what is judged necessary by the governing council to deliver price stability and to solidly anchor the European economy in terms of price stability and of confidence.”

Asked about Greece, Trichet reiterated that the ECB does not want to see any kind of “credit default” or “selective default” .. but otherwise would not be drawn.

The ECB is a major stumbling block to the EU being able to put in place a second rescue plan for Greece.

It has threatened to refuse restructured Greek bonds as collateral in its lending operations in the event of a default or a “restricted default.”

That would deprive Greek banks of the funds on which they rely, crippling the Greek economy and risking contagion to other euro zone economies.

The ECB has to try to balance curbing inflation by raising rates – which mean people have to pay more for borrowing for things like their mortgages – with the problem that rate hikes stifle growth as the European recovery loses momentum.

Trichet and his fellow policymakers are focused on euro zone inflation which remained at 2.7 percent in June. That was not as bad as had been feared but was still well above the ECB’s target of just under two percent.

The central bank for the 17-country single currency bloc increased its rates previously in April, becoming the first major central bank to lift interest rates after the intensification of the financial crisis.

Meanwhile in Britain, the Bank of England kept its key interest rate at a record low 0.5 despite much higher inflation in the UK.

It is likely to stay put for the rest of the year as the British economy struggles. A stream of disappointing economic data had meant the no-change verdict was a foregone conclusion and there was no financial market reaction.

UK interest rates have stood at 0.5 percent since March 2009, when a deep recession and the threat of deflation prompted central banks around the world to slash rates to record lows.

Since then, inflation in Britain has soared to more than double the central bank’s 2.0 percent target, but the BoE has been reluctant to tighten monetary policy at a time when the economy is already feeling the pain of the government’s fiscal tightening.

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