Euro zone economic growth is on a firm footing and interest rates remain low, European Central Bank President Jean-Claude Trichet said today, signalling further credit tightening lies ahead.
In a passionate defence of the ECB's three rate rises over the past six months, Trichet deflected criticism from European politicians suggesting that the bank should delay increases and do more to support growth.
Instead Trichet told a European Parliament committee that the ECB will not hesitate to make sure that inflationary pressures are kept under control, especially given upside price risks from high oil costs.
Solid economic growth over a number of months would remove an obstacle to the ECB continuing to raise interest rates. It has already increased them 0.75 percentage points in three steps since December to 2.75%, the highest level in three years.
In noting that markets and analysts have understood the ECB's determination to control inflationary pressures, Trichet implicitly endorsed market pricing for the ECB to raise its benchmark rate again in late August and to reach 3.25% by the end of the year.
His testimony followed stronger than expected French consumer data, which provided further evidence that economic growth, forecast at around 2% this year, has strengthened.
