Trichet Says Inflation Risks Are ‘Balanced’ on Slump

By Simone Meier

Jan. 15 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said inflation risks are “broadly balanced,” signaling that he’s reluctant to keep up the current pace of interest-rate cuts.

“It is not the intention of the Governing Council to find itself in a liquidity trap,” Trichet told reporters in Frankfurt after cutting the ECB’s benchmark by 50 basis points to 2 percent, matching a record low. Policy makers will probably wait until March before deciding to move rates again, he said.

Trichet is reluctant to follow the Federal Reserve and cut borrowing costs too close to zero. The economy of the 16 euro nations is nevertheless deteriorating more rapidly than the ECB anticipated last month as the global financial crisis hurts exports, damps spending and threatens credit ratings in the region.

The euro initially rose after Trichet’s comments, climbing as much as 1 percent to $1.3241. It traded at $1.3152 at 3:31 p.m. in Frankfurt. The ECB has reduced its benchmark by 225 basis points since early October.

“The euro area is experiencing a significant slowdown largely related to the effect of the intensification of financial turmoil,” said Trichet. “Medium-term inflation is broadly balanced and in line with our definition of price stability.”

Trichet, who said today’s decision was unanimous, indicated the ECB will wait for revised growth and inflation projections in March before taking its next decision.

March Meeting

“Our decision in February is only in three weeks,” Trichet said. “We consider it is not a relevant one to make monetary policy decision.”

The ECB “has been overwhelmed by a series of dismal data,” said Carsten Brzeski, an economist at ING Group in Brussels. “The recession in the eurozone seems to worsen by the day, while at the same time inflation is no longer a concern.”

The Fed last month lowered its key rate to a target range of zero to 0.25 percent. Japanese and Swiss rates are also close to zero. The Bank of England on Jan. 8 cut its main lending rate to 1.5 percent, the lowest since the bank was founded in 1694.

The ECB has reduced its benchmark by 225 basis points since early October. Trichet said last month that there’s a limit to how far the ECB can cut rates after lowering the benchmark by 75 basis points, its most aggressive step ever.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net