Trichet defends euro interest rate rise

A rise in euro area interest rates is “the message of the people”, European Central Bank President Jean-Claude Trichet has told MEPs.

The ECB is set to take interest rates up to 2.25 per cent – after two years of a two per cent rate in the euro zone.

Trichet has confirmed the bank is poised to boost rates amid concerns of the impact of high oil prices on inflation.

“I would consider that the governing council is ready to take a decision to move interest rates, and to moderately augment the present level of ECB rates in order to take into account the level of risks to price stability that have been identified.”

“We would thus withdraw some of the accommodation which is embedded in the present monetary policy stance, while the policy would remain accommodative,” he said.

“This move would aim at coping with inflationary risks in order to maintain and preserve full confidence in price stability and to continue solidly anchoring inflation expectations.”

The French ECB president defended the decision against German, and other, concerns of the impact of the rate rise on economic growth.

He stressed that the ECB would act for the eurozone’s 311 million voters and “not only for the 82 million of Germany”.

“The people of Europe, the 311 million citizens of the euro area, will expect us to be vigilant and to guarantee price stability,” he said on Monday.

“They are calling on us to guarantee price stability… it is the message of the people.”

Trichet assured the European Parliament’s Economic and Monetary Affairs Committee that the ECB was not planning a series of interest rate hikes.

“I do not see at all, ex ante, the start of a series of interest rate changes,” he said.

Inflation fears and concerns over a knock on effect from soaring oil price shocks on monetary stability are set to see an ECB rate increase on December 1.

"Upside risks relate to ongoing uncertainties surrounding oil market developments, to a potentially stronger pass-through than has so far been observed – on account of higher oil prices being passed on to consumers via the domestic production chain – and to potential second-round effects in wage and price-setting behaviour."

"In addition, possible further increases in administered prices and indirect taxes have to be taken into account," said Trichet.

October’s headline inflation was at 2.5 per cent, running above the ECB’s two per cent target for nine months running.

But Germany’s incoming government is unhappy with the idea of a rise, hoping to keep low rates to boost economic growth.

The chair of eurogroup of finance ministers, Jean-Claude Juncker has warned Trichet that he rejects the oil price inflation argument.

"I have said on several occasions that there are no second-round effects on wages policy and that therefore there is no need to raise interest rates," Juncker told Reuters on Monday.

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