The Governing Council of the European Central Bank (ECB) decided yesterday that interest rate on the main refinancing operations and the interest rates on loans and deposits will remain unchanged at 1.50 percent, 2.25 percent and 0.75 respectively. The ECB want to maintain inflation rates below, but close to, 2 percent over the medium term.
The President of the ECB, Jean-Claude Trichet, stated that recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter. Moderate expansion is expected but uncertainty is particularly high, as governments are adjusting their balance sheets. On the medium-term, risks include increases in energy prices and in indirect taxes and administered prices, needed for fiscal consolidation.
The Governing Council of the ECB wants a strict implementation of IMF/EU adjustment programmes in Greece, Ireland and Portugal, while states faring better should implement measures for debt and deficit reduction. The Council went on saying that all Member States should improve competitiveness and address macroeconomic imbalances, removing labour market rigidities and eliminating automatic wage indexation clauses which would enhance wage flexibility.
The ECB also stressed the need for banks to retain earnings, strengthening their capital bases on the market or to benefit from government support measures for recapitalization. National authorities committed to provide support facilities for banks where private sector assistance is insufficient.