Trichet Says ECB’s Next Important Rate Meeting Is In March

By Simone Meier and Francine Lacqua

Jan. 29 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the bank’s next “important” meeting will be in March, suggesting policy makers will avoid the interest-rate cut some investors expect next week.

“In March we’ll have a lot of new information, we’ll have our own staff projections,” Trichet told Bloomberg Television in an interview in Davos, Switzerland, yesterday. Officials meet Feb. 5 and investors are betting they will lower the key rate by at least half a percentage point, Eonia forward contracts show.

The ECB has been forced into the most aggressive series of rate reductions in its 10-year history after the global financial crisis pushed the euro-region economy into a recession. Still, Trichet has signaled the bank is reluctant to follow the U.S. Federal Reserve in cutting borrowing costs to close to zero.

“Very, very low interest rates have some inconveniences that the Governing Council is trying to avoid,” he said. When asked whether policy makers are designing new tools should rates approach zero, Trichet said “there is nothing that would be imminent.”

The ECB has cut its main interest rate by 2.25 percentage points since early October to 2 percent, matching a record low.

‘Wait-and-See Policy’

“Markets are looking for the risk that data is so dramatically dire that it could force the ECB into cutting rates,” said Matthew Sharratt, an economist at Bank of America Corp. in London. “There’s a great degree of reluctance at the ECB to take rates lower. They’re going to try and do their best not to follow the Fed and the Bank of England.”

Traders may sell the currency because the ECB is delaying a cut in interest rates, Royal Bank of Scotland Group Plc said. The euro fell yesterday, declining 0.4 percent to $1.3105.

“The market will not like the notion of the ECB’s wait-and- see policy,” Dustin Reid, director of currency strategy at RBS Greenwich Capital Markets in Chicago, wrote in an e-mailed note. “I suspect the euro eventually trades lower on this.”

The ECB has the highest rates among the Group of Seven industrialized nations. The Fed, the Bank of England and the Swiss central bank have cut borrowing costs by more as the world’s largest economies slide simultaneously into recession for the first time since World War II.

Fed Purchases

The Bank of England on Jan. 8 reduced its main lending rate to 1.5 percent, the lowest since it was founded in 1694, and the government has given it the power to buy securities as rates near zero. The Fed kept its key rate as low as zero yesterday and said it’s prepared to purchase “longer-term Treasury securities.”

Some European policy makers say the ECB shouldn’t rule out unconventional measures if they need to pump more money into the economy.

“A central bank that has already reduced its policy rate to zero could be incorrectly advised to stop pursuing expansionary measures because these are thought to be ineffective,” council member Athanasios Orphanides said in a speech in Limassol, Cyprus yesterday.

Trichet said the ECB has already shown willingness to take unusual action, noting it had expanded its balance sheet to get more money to banks.

“Already we’re doing things which are not standard,” he said. “We’re in a non-standard world. Whether or not we’ll embark on other non-standard operations, I said already I wasn’t excluding. We’ll see.”

Deepening Recession

As ECB officials debate monetary policy, their 16-nation economy is deteriorating. European manufacturing and service industries contracted for an eighth straight month in January, confidence in the economic outlook dropped to a record low in December and unemployment rose to a two-year high in November.

“We’re very, very carefully observing” all incoming data, Trichet said. “This year is in the negative territory and even more in negative territory than our last projections.”

The International Monetary Fund yesterday cut its forecast for the euro-region economy to predict a contraction of 2 percent this year. The Washington-based fund previously projected the economy would shrink 0.5 percent in 2009.

Euro-region inflation probably slowed to 1.4 percent in January from 1.6 percent in December, a Bloomberg survey shows. That report is due from the European Union’s statistics office in Luxembourg on Jan. 30.

“We do whatever is necessary to permit inflation in the medium term to be in line with our definition of price stability -- less than 2 percent but close to 2 percent,” Trichet said. “We didn’t see a risk of deflation. We shouldn’t confuse disinflation with deflation,” he added.

Trichet is scheduled to speak on a panel discussing European economic governance at 3:45 p.m. later today. He will be joined by Deutsche Bank AG Chairman Josef Ackermann, Italian Finance Minister Giulio Tremonti and European Commission President Jose Manuel Barroso. He sits on a panel with Henry Kravis, founder partner of Kohlberg Kravis Roberts & Co., tomorrow. It’s called “Scenarios for the Future of the Global Financial System.”

To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net; Francine Lacqua in Davos at flacqua@bloomberg.net.