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Trichet defends stance on inflation, repeats remark that ECB could raise rates at next meeting

Trichet defends stance on inflation, repeats remark that ECB could raise rates at next meeting

European Central Bank President Jean-Claude Trichet on Monday repeated that the bank might raise rates "a small amount" at its next meeting _ but insisted bank officials had not discussed a series of increases.
"I will repeat exactly what was said," Trichet said. "I did not exclude that we could increase by a small amount present interest rates. I said it was not certain, but it was possible."
But he indicated that extended credit tightening through a series of rate increases was not supported by members of the bank's governing council. "I never said there was a group in favor of a series of interest rate rises," he said.
Trichet's comment on Thursday about rates possibly going up at the bank's July meeting sent the dollar plunging and the price of oil soaring to a record US$139.12 in New York trading Friday. Higher rates in Europe are considered one factor behind the dollar's slump against the euro, and the weaker dollar helps propel oil higher as investors put money in crude as a hedge.
The bank last week left its key interest rate unchanged at 4 percent but Trichet appeared to be preparing markets for a move the next month to ward off increasing inflation.
Trichet said the rate decision was taken by consensus among the 21 members of the ECB governing council, with some members in favor of tightening credit and others more worried about economic growth. Asked how big the possible rate rise being discussed for next month could be, Trichet answered, "I said myself a small increase."
Most ECB rate moves in the bank's 10-year history have been by a quarter percentage point.
In his remarks at an event organized by the Forum for New Diplomacy in Paris, Trichet told listeners that the key to weathering the current economic challenges, which include spiraling energy and food prices, is to keep inflation under control. Central banks do that with higher rates _ which can also raise borrowing costs for individuals and businesses and dampen economic growth.
He said the bank's pleas for wage restraint are directed towards both executives and workers.
He said the ECB's challenge was "to deliver price stability in the medium term and be credible in the delivery of price stability in the medium term."
"For all central banks in the world in a period where we have shocks... it is extremely important that we weather those shocks with a very solid inflation anchoring," he said.