Tags: Trichet | Backs | Strong | Dollar | Warns | eu | Inflation

Trichet Backs Strong Dollar, Warns on Inflation

Tuesday, 26 Apr 2011 08:38 AM

The European Central Bank will do its utmost to prevent higher energy and commodity prices from seeping into other prices, the ECB's head, Jean-Claude Trichet, was quoted as saying on Tuesday.

But he said that has not happened yet and that inflation expectations have not risen to alarming levels.

"We have risks of second-round effects here and there. We have to be very alert that they do not materialize," Trichet told Finnish dailies Kauppalehti and Helsingin Sanomat in a joint interview.

"At the moment I do not see any significant materializing of second-round effects and I do not see un-anchoring of inflation expectations. But this is no time for complacency. We have to be permanently alert to avoid the materialization of such risks."

This month, the ECB raised its interest rates by 25 basis points to 1.25 percent, the first time since July 2008 that it increased rates, citing upside inflation risks.

In the interview, Trichet also said the ECB has to make monetary policy to fit the entire common currency region, not its parts.

"We are not compromising on our primary goal of maintaining price stability and our interest rate decisions are designed to fulfill that aim. Any other approach would be unthinkable."

Interest rate decisions are independent of the central bank's nontraditional measures, which were instituted to help banks during the financial crisis, Trichet said, adding that the nonstandard measures were temporary.

Trichet also urged all countries to practice sustainable fiscal policy, adding that investors have to be able to trust developed countries' ability to pay back their debt.

"It is extremely important that the authority of the signatures of the advanced economies is unchallengeable," Trichet said, adding that he has "full trust in the United States for preserving its creditworthiness and the authority of its signature."

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The European Central Bank will do its utmost to prevent higher energy and commodity prices from seeping into other prices, the ECB's head, Jean-Claude Trichet, was quoted as saying on Tuesday. But he said that has not happened yet and that inflation expectations have not...
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