|European Central Bank Jean-Claude Trichet in Davos, Switzerland - webcast|
European Central Bank Jean-Claude Trichet spoke in Davos, Switzerland yesterday on a panel focusing on the current financial instability and he again made clear that the ECB would not give in to the pressure for interest rate cuts. German Bundesbank President and Governing Council member Axel Weber said that investors' wagers that the ECB will cut interest rates later this year may be ``wishful thinking.''
Systemic Financial Risk Panel
Financial markets continue to drive global growth by deepening economic connections among countries, but these linkages are also vehicles of crisis contagion.
What have we learned from the sub-prime crisis and other crises in recent memory? How should policy-makers and the financial services industry work together to avert a recurrence of a similar crisis? What are the risk issues and financial innovations that require greater attention?
- James Dimon,Chairman and Chief Executive Officer, JPMorgan Chase & Co., USA; Co-Chair of the World Economic Forum Annual Meeting 2008
- Wes Edens,Chairman and Chief Executive Officer, Fortress Investment, USA
- Jean-Claude Trichet,President, European Central Bank, Frankfurt
- James J. Schiro,Group Chief Executive Officer and Chairman of the Group Management Board, Zurich Financial Services, Switzerland
Trichet said that anchoring both inflation and people's expectations of future inflation was his priority.
"There is one needle in our compass and it is price stability,"Trichet said.
"There is no contradiction between price stability and financial stability," he added.
The ECB's benchmark rate of 4% compares with the US federal funds rate of 3.5%. Eurozone annual inflation was 3.1% in December compared with the ECB's target of "below but close to 2%."
Supporting comments by James Dimon of JPMorgan Chase, Trichet said risks and their consequences were part of a market-based economy and central banks should only minimise the fallout.
"If risks did not materialise you would not be living in a market economy, you would be living in the Soviet Union."
Trichet is reported to have received hugs and encouragement from OECD head Angel Gurria and former Italian finance minister Domenico Siniscalco for not bowing to calls for interest rate cuts.
He was then challenged by an angry fellow Frenchman, who asked if he wanted to see European industry relocate outside Europe. "I take note," Trichet calmly said.
Professor Axel Weber said in Davos that investors' wagers that the ECB will cut interest rates later this year may be ``wishful thinking.''
``We have a positive economic outlook and as long as that doesn't change I would say that rates are still on the accommodative side and in no way restrictive,''Weber said in an interview with Bloomberg Television. ``There may be a certain wishful thinking'' priced into investors' rate forecasts."
Weber said the market sell-off is ``necessary'' and he's yet to see ``clear cut'' signs that the ECB should be worried about slowing growth, citing Thursday's increase in German business confidence.
There's no reason to alter the ECB's assessment of growth and inflation made in December, Weber said. While Europe won't be able to ``completely escape'' the US slowdown, the outlook for the global economy is still ``quite good.'' Weber said he expects exports to Asia and Middle Eastern countries to compensate for weaker U.S. expansion.