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European Central Bank 'closely monitoring' inflation | European Central Bank 'closely monitoring' inflation |
(about 1 hour later) | |
The European Central Bank (ECB) has kept interest rates in the eurozone unchanged at a record low 1%, despite fears of increasing inflation. | The European Central Bank (ECB) has kept interest rates in the eurozone unchanged at a record low 1%, despite fears of increasing inflation. |
Speaking at a press conference after the rate decision, the ECB president Jean-Claude Trichet claimed that inflation pressures remained contained. | Speaking at a press conference after the rate decision, the ECB president Jean-Claude Trichet claimed that inflation pressures remained contained. |
He added that "very close monitoring is warranted". | He added that "very close monitoring is warranted". |
His surprisingly dovish comments sent the euro significantly lower against other currencies. | |
Against the dollar, the euro was down 1.2% at $1.364, while sterling rose 0.9% against the single currency to 1.183 euros. | |
Strong data | |
The decision to hold interest rates for the 21st month in a row comes after inflation increased to 2.4% in January - a 15-month high. | |
It also follows strong economic data, including an encouraging eurozone manufacturing survey. | |
On Monday, the Markit Purchasing Managers' Index (PMI) for the eurozone said that the region's factory output rose slightly to 57.3 in January from 57.1 in December. | On Monday, the Markit Purchasing Managers' Index (PMI) for the eurozone said that the region's factory output rose slightly to 57.3 in January from 57.1 in December. |
Any value above 50 indicates expansion in the manufacturing sector. | Any value above 50 indicates expansion in the manufacturing sector. |
The equivalent survey in the US - the ISM survey - said that factory activity rose to a higher-than-expected level of 60.8 in January, up from 58.5 in December. | The equivalent survey in the US - the ISM survey - said that factory activity rose to a higher-than-expected level of 60.8 in January, up from 58.5 in December. |
'Tilted to the downside' | 'Tilted to the downside' |
Mr Trichet said the ECB board's decision not to raise interest rates was unanimous. | Mr Trichet said the ECB board's decision not to raise interest rates was unanimous. |
Although inflation expectations remain "well anchored", he warned that the inflation rate could temporarily increase further, and is likely to stay slightly above 2% most of 2011, before moderating again in 2012. | Although inflation expectations remain "well anchored", he warned that the inflation rate could temporarily increase further, and is likely to stay slightly above 2% most of 2011, before moderating again in 2012. |
Rising energy and commodity prices were the immediate cause, but the ECB president warned that rising indirect taxes - such as VAT - and price pressures in production chains could further heighten price rises. | Rising energy and commodity prices were the immediate cause, but the ECB president warned that rising indirect taxes - such as VAT - and price pressures in production chains could further heighten price rises. |
On the wider eurozone economy, he said that recent data continues to confirm a "positive underlying momentum", noting the strong export recovery and rising private sector confidence. | On the wider eurozone economy, he said that recent data continues to confirm a "positive underlying momentum", noting the strong export recovery and rising private sector confidence. |
Risks were still "slightly tilted to the downside", he said while "uncertainty remains elevated". | Risks were still "slightly tilted to the downside", he said while "uncertainty remains elevated". |
Mr Trichet noted in particular the risks posed by the financial sector, rising commodity prices, trade protectionism and a potential disorderly correction of global trade imbalances. | Mr Trichet noted in particular the risks posed by the financial sector, rising commodity prices, trade protectionism and a potential disorderly correction of global trade imbalances. |