By Anne-France White - 25th October 2006
The European Central Bank will tighten its monetary policy in 2007 if the euro zone recovery continues as expected, ECB chief Jean-Claude Trichet has said.
During an October 26 debate with the European parliament, Trichet said “if our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation”.
He said economic growth in the euro zone had gained momentum and “become more broadly-based and sustained, mainly supported by domestic demand”.
The ECB chief emphasised that inflation risks “remain on the upside” for 2007, adding that the bank “will continue to monitor very closely all developments so as to ensure price stability over the medium to longer term”.
In their annual debate on the ECB, MEPs considered a report which praises the ECB’s handling of interest rate policy, while warning of the need for caution when raising rates to avoid endangering growth.
The report also calls the EU should “take the initiative” in the global debate on the need to better control the activities of hedge funds.
Trichet said the ECB would follow up on this request, noting that “it is clear that there are potential risks for financial stability from their rapidly growing presence in the financial system”.
But he argued that “it would be unfair not to mention [hedge funds’] role as regards enhancing market liquidity, providing significant diversification opportunities for investors, and fostering financial innovation”.
He also made it clear that any move on increased regulation of hedge funds would have to be agreed on with the US.
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