ECB's monetary policy 'accommodative': Trichet

European Central Bank president Jean-Claude Trichet said today that monetary policy in the euro zone remained 'accommodative' even after a hike of interest rates last week to 2.5% from 2.25%.

'We are in an environment which remains accommodative,' he said in Paris today, meaning the ECB considers that monetary policy is providing a stimulus to economic activity.

He said that the ECB had decided to raise rates last week because of an increased risk of inflation in recent months. 'We considered that there was an increase in medium-term inflation risks,' he said, adding that a survey by the ECB of professional forecasters had pointed to a rise in expectations of inflation.

This indicated an increasing risk that inflation would rise higher than 2% in the medium term, he said. The ECB has an inflation target of close to but just below 2%.

Announcing the rate hike last week, the bank had noted inflationary risks and had upgraded its forecasts for euro zone inflation for both this year and 2007. While the bank had previously been expecting inflation to slow to 2% next year from a current rate of 2.3%, it said it was now expecting an average annual inflation rate of 2.2% both in 2006 and 2007.

Trichet also reiterated that the ECB had not already decided on a series of rate increases, but said that the governing council of the institution would take whatever steps were needed to control inflation. He said the council is in the 'same state of mind' as it was in December after it first started hiking rates.

Last Thursday, the ECB had also upgraded its economic growth forecasts, saying it was expecting growth of 2.1% in 2006 and 2% in 2007, compared with a previous forecast of 1.9% for both this year and next. Higher interest rates would not put the brakes on growth, Trichet had insisted.