— Adds Comments On Price Stability Mandate, US Dollar

FRANKFURT (MNI) – Monetary policy in the Eurozone is still
“accommodative” and risks to the medium-term outlook for prices remain
“on the upside,” the Governing Council of the European Central Bank said
Thursday after deciding unanimously to leave its key interest rates
unchanged.

The Council will continue to “monitor very closely” developments
with respect to upside risks to price stability, ECB President
Jean-Claude Trichet told reporters after its meeting here.

The comments suggest that the central bank’s tightening bias
remains in place, but that a third rate this year is unlikely to be
decided at the next policy meeting in September.

This comes as little surprise, as analysts have scaled down the
likelihood of another hike before the end of the year in light of
slowing inflation, waning economic growth and the resurgence of tensions
on financial markets amid the risk contagion from Greece’s debt
problems. Forward markets have virtually priced out a further rate hike
this year.

Trichet reiterated the importance of the ECB meeting its
price-stability mandate and said that it was essential that the ECB
continue to keep a lid on inflation expectations.

“As regards the monetary policy, we are taking our standard
measure: we do what we judge necessary to be sure that we deliver price
stability,” he said. “We consider it is very, very important for
confidence, for stability in the euro area, confidence in the largest
sense of the term.”

“We consider it extremely important to continue anchoring inflation
expectations correctly,” he added.

Turning to the ongoing economic soft patch in Western countries,
Trichet said that the ECB had already anticipated a slowdown in Eurozone
activity in Q2. He warned that there was a high level of uncertainty as
to the path of both Eurozone and global growth in the coming months.

“On the real economy, I have said that the first quarter was
exceptionally buoyant,” he said. “And we were expecting a slowing down.
We will observe a slowing down in the second quarter and we will see
what will happen in the third quarter.”

Turning to currencies, Trichet repeated his view that a “strong
dollar is good for the US and good for the rest of the world.”

–London newsroom: 4420 7862 7492;
email: wwilkes@marketnews.com/ drobinson@marketnews.com

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