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Trichet Says Momentum Positive, Uncertainty Remains

European Central Bank President Jean-Claude Trichet comments on monetary policy, inflation and growth in the economy of the 16 nations sharing the euro.

He spoke at a press conference in Frankfurt today after the ECB kept its key interest rate at a record low of 1 percent.

On refinancing operations:

“The governing council also decided to continue conducting its main refinancing operations with maturity of one-maintenance period with fixed tender procedures with full allotment as along as needed, and at least until April 12. It also decided to conduct three-month operations to be allotted” in January, February and March “as fixed-rate tender procedures with full allotment.”

“The rate will be fixed at the average rate. Overall the current monetary policy stance remains accommodative. The allotment mode and stance will be adjusted as needed.”

On non-standard measures:

“We consider four our monetary policy stance the present interest rate as appropriate. Our non-standard measures are there to permit the appropriate transmission of standard measures of this monetary policy stance. We have decided to maintain full allotment for the first quarter of next year for as I said, not only the MRO but also the three-month allotment. Our judgement is that it’s appropriate to pursue” this mode.

“Today I said a number of things and I don’t want to repeat the five points. I think every observer can see what we’ve decided, what are our intentions, on what mode we are, on what alertness we are and this is what I can reveal as clearly as possible of the governing council’s position. We’ll remain permanently alert and that’s something that has always been in our doctrine. Credible alertness as regards standard measures and as regards non-standard measures.”

On bond purchases:

“The governing council considers that the SMP program is ongoing. I won’t comment on the observation of market participants, I draw your attention to the fact that what we’re doing is commented on by markets. We’ll continue to withdraw liquidity we’re injecting through the program. You know very well the tool we utilize. We’ll continue to be permanently alert to have the right policy stance.”

On whether purchases are temporary:

“We have to be commensurate to what we observe in the functioning of various transmission channels. We are commensurate any time to what we’re observing. Our working assumption is that we’ll be back to normal functioning when we’re back to normal functioning.”

“They are temporary in nature.”

“We had designed the program since the very beginning as helping us to restore” the “transmission mechanism of our monetary policy. The governing council is the judge how to help restore a better transmission. It’s not quantitative easing, we’re withdrawing all the liquidity.”

On whether there’s a limit to bond purchases:

“Since the very beginning I never said on behalf of the governing council what was the limit of the program. It’s totally in continuity of the SMP doctrine.”

On whether there was unanimity on delaying the exit:

“We have consensus for the decision we took on the three months and the overwhelming majority as regards the SMP. What counts of course is the governing council.”

On the exit in the first quarter:

“We had no pre-disposition. It was a possibility. We had the possibility of either to go back to what would be normal tenders or to maintain non-standard measures. We didn’t have a predisposition. We were not pre-committed for any of the two options. We had the two possibilities, they were of course open and we decided to maintain the full allotment.”

On market disruptions:

“The SMP is ongoing and observed with markets with great attention. It’s designed to permit the best possible transmission or our policy under the present circumstances. It’s the way we’re looking at all non-standard measures. It’s for that reason we decided to maintain the full-allotment. I have no other comment that that. We’re constantly alert, we’re constantly looking at the situation of the markets and the acute tensions, and we continue to apply our doctrine, which is separating standard and non-standard measures. We have a mandate, the mandate is clear.”

“We have tensions and we have to take them into account. We expect the executive branches to do themselves what we trust they have to do.”

On Ireland’s bailout:

“It goes without saying that it’s been the decision of the Irish government. And all those in discussions concluded that it was necessary to engage in this program.”

On the ECB decision:

“Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates as appropriate.”

It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting in November, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon.”

“Recent economic data are consistent with our assessment of the underlying positive momentum of the recovery. At the same time, uncertainty is elevated.

On inflation:

“Our monetary analysis confirms that inflationary pressures over the medium term remain contained. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations are firmly anchored in line with our aim of keeping inflation rates below, but close to, 2 percent over the medium term. The firm anchoring of inflation expectations remains of the essence.”

“Inflation rates will hover around current levels before moderating again the course of next year.”

“Inflation rates should remain moderate.”

On risks:

“It’s true that we consider that the risks are broadly balanced when we look at the medium term risks for price stability. It’s taking into account all the risks on the upside and the risks on the downside, also that we consider the risks for the real economy to be slightly tilted to the downside. I have also to mention that since the start of the recovery, we have been constantly surprised on the upside by what we’ve been observing.”

On budget deficits:

“While budgetary developments for some euro area countries are more favourable than expected, concerns about unsustainable fiscal positions and their vulnerability to adverse market reactions remain very high for others and have had repercussions throughout the euro area.”

“There is a clear need for the responsible authorities to strengthen confidence in sound public finances, thereby reducing risk premia in interest rates and supporting sustainable growth over the medium term. At the same time, all euro area countries should pursue ambitious and credible multi-year consolidation strategies.”

“For all countries, it’s extremely important to substantiate the decisions that would permit to attain the goals for fiscal deficits in 2011. It’s the very firm message we have for all countries, of course also for Portugal.”

On increasing the size of EFSF:

“It is a decision which has to be taken by governments. We call on all authorities to be up to their responsibilities. I trust that we will be in contact, and we are in contact, with the authorities in question, for them to demonstrate as clear as possible that they are up to their responsibility.”

On currency moves:

“Excessive volatility is not welcome, it’s not good for global prosperity, global growth. I will stick to this remark which won’t surprise you.”

On markets’ confidence in governments:

“It’s always a matter of regaining confidence progressively. It’s up to responsible authorities. I’m sure they’ll do that to redress progressively. I never saw sharp or abrupt chances in the attitude of investors. I’m confident in the fact that authorities in charge will progressively convince markets.”

On market developments:

“I never comment on market behaviour in real time. Everybody knows that you have in the market those who are long and those who are short. I would say that I’m not speaking on markets on a real-time basis, let’s look at the situation on longer-term basis.”

“All countries in Europe are pursuing fiscal stabilization programs and adjustment programs. The euro area on a consolidated basis is this year and next year in a much better shape than the other big, advanced economy as regards public-finance deficits. This year consolidated fiscal deficit in the euro area 6.3 percent of GDP, 11.3 percent in the U.S., 9.6 percent in Japan. The real economy in Europe has until now, more surprised on the upside than on the downside. The last PMI we had was quite encouraging, I don’t want to quote any particular survey I see, the German citizens know what the know Ifo” survey was. “All these elements have also to be incorporated in the observation of markets.”

On economic growth divergences:

“All very fast continental economies like the euro area, like the U.S., have a level of standard deviation, if I may, between growth between the different states or economies, between the unit-labor costs, between inflation and so forth. Those parts of the euro-area economy that have regained competitiveness through hard work, not only the German economy, can now be a source of growth, and it’s of course to the benefit of the euro area as a whole.”

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