Trichet Says Rate Increase Will Bring Down Inflation

Simone Meier and Christian Vits
Bloomberg
June 3, 2008

European Central Bank President Jean- Claude Trichet played down prospects of further interest-rate increases, saying the quarter-point move today will help bring inflation back below 2 percent.

“Today’s decision will contribute to achieving our objective,” Trichet said at a press conference in Frankfurt after the ECB raised its benchmark lending rate to 4.25 percent. Trichet said he has “no bias” on further moves.

The euro slumped against the dollar and European government bonds rose after Trichet’s remarks. The ECB is weighing the risk that higher rates will exacerbate an economic slowdown against the danger that the fastest inflation in 16 years will feed into wages and prices.

Trichet “suggested they currently have no plans to raise interest rates again,” said Dario Perkins, an economist at ABN Amro NV in London. “Of course, that doesn’t rule out further moves. It will depend on what happens to inflation and, more importantly, inflation expectations.”

The euro dropped 2 cents to $1.5703 at 10:47 a.m. in New York. It rose to the all-time high of $1.6019 on April 22. The yield on the German two-year note fell more than 20 basis points to 4.49 percent.

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