G7 MEETING - ECB remains in strong vigilance on inflation - Trichet
09.16.2006, 10:17 AM
SINGAPORE (XFN-ASIA) - The European Central Bank remains in a position of 'strong vigilance' on inflation, ECB President Jean-Claude Trichet said
Speaking after the meeting of G7 finance ministers and central bankers, Trichet told reporters: 'We are in a position of strong vigilance (on inflation).'
The ECB President added that there were no signs of second round inflation effects in the euro area thus far, but reiterated his belief that the bank must act before these materialise.
'When those second round (inflation) effects are there, it is too late,' Trichet said, adding, 'our job is to prevent them materialising, which we have done 'till now.'
Asked whether the G7 discussed the recent weakness of the Japanese yen, Trichet merely said: 'We discussed foreign exchange rates, the communique is exactly the same as in April, it reflects our common understanding.'
'We also discussed the state of Japanese economy. We noted that it had exited its zero interest rate policy, that its recovery is now broad-based. We agreed that the yen will reflect these developments,' he said.
Trichet refused comment on the Iranian threat at the weekend to move its foreign exchange reserves and oil earnings out of dollars into other currencies, saying only that the ECB never either encouraged nor discouraged the international use of the euro.
Separately, Trichet said that global growth is 'exceptionally robust' but warned that risks are on the increase, citing the usual suspects of global imbalances, higher oil prices and greater protectionism.
He added that short-term inflation is on an upward trend on a global scale and that there was a broad consensus amongst the G7 delegates that inflation expectations must remain contained.
Jean-Claude Juncker, chairman of the Eurogroup of euro area finance ministers, appearing at the same press conference with Trichet, offered an especially bullish outlook on eurozone growth.
Euro area has been growing above potential in the first half of the year and is 'expected to remain around potential in the medium term,' Juncker said.
Furthermore, the euro area economy is being increasingly driven by domestic demand, making the zone less dependent on external factors, he said.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia reiterated that the zone has resisted the inflationary pressures from higher oil prices.
