FRANKFURT (MNI) – Current inflationary pressures are “transitory,”
but they could become more embedded in the economy if the European
Central Bank doesn’t take the appropriate actions, ECB President
Jean-Claude Trichet said on Friday.

In an interview with CNBC, Trichet hinted that the ECB will hike
rates again, saying that the bank was now in the same “mode” as in
December 2005, when it started its last rate hiking cycle.

While acknowledging that the current spike in inflation was mainly
due to commodity prices, Trichet stressed that the ECB still needed to
take the appropriate decisions.

“It is a hump in the CPI,” Trichet said. “We have no direct impact
on the price of oil. But we have to care for the medium run. It depends
on us that it would be transitory. That’s the idea.”

He added, “If we are alert and if we take the right decision, then
it is transitory. If we let the second round effects materialize, then
it is not transitory. That is the issue for us.”

Trichet said second round inflation effects had not yet
materialized, but added that it was “absolutely obvious” the threat of
such an occurrence was there.

“But again, we are alert, and we proved that we were alert,” he
added.

The central banker once again highlighted how the ECB was “highly
criticized” in December 2005 when it embarked on its last series of rate
increases.

“Everybody would say now that we were absolutely right of course to
increase rates,” Trichet said. “And we are now in this mode. We have
increased rates last month. We will have in the next month, as you know,
our own new projections, then we will have a full picture of the
situation and then we will take an appropriate decision.”

“Again, all that we do is directed, concentrated on delivering
price stability in the medium term,” Trichet continued. “That is what we
have as our mandate.”

Asked whether the current crisis in the Eurozone was a solvency
problem rather than a liquidity problem, Trichet stressed that solvency
would only be an issue if the countries involved made it into one.

“But we are telling them, and particularly those of course who have
the greatest difficulty, that it relies upon them that they have the
capability to surmount their difficulty as other countries did in the
past,” Trichet said.

“Nothing is impossible,” Trichet continued, noting that the
political will was there.

“When you look at what…we recently have done, you see that
everything is possible when you have the will, and…it is extremely
important to concentrate on what they should do in the present
circumstances,” Trichet said. “We have [aid] programs now that have been
negotiated…that are being processed.”

The ECB chief also reiterated his endorsement of comments by U.S.
Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben
Bernanke about the importance of a “credible and strong” dollar.

“I think it was very important…what Tim and Ben repeated,”
Trichet said. “And again, which I totally share, that it is in the
interest of course of the U.S. but also of the international community
that we have a credible, strong dollar.”

Focusing on the external value of the euro, Trichet said it was
taken into account when making monetary policy decisions but was only
one of many parameters. He stressed that that ECB has no exchange rate
target.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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