European Central Bank President Jean-Claude Trichet on Friday said the ECB needed to remain vigilant in combating inflation, warning of upward pressures from rising energy costs.
"We have said that monetary policy must remain vigilant in maintaining price stability," Trichet told a news briefing after a meeting of central bankers and finance ministers from Group of Seven nations.
"Any further increases of oil and commodities, oil and gas, are very much at the heart of your question - and are triggering an inflationary impact and a depressive impact on the economy," Trichet said in response to a question. Trichet highlighted G7 discussions of exchange rates, particularly in regard to China's yuan.
"The communiqué has changed on China and the yuan," Trichet said, referring to the post-meeting statement issued by the officials from the United States, Canada, France, Italy, Germany, Britain and Japan.
While welcoming China's efforts to increase exchange rate flexibility, the communiqué also said Beijing needed "to allow accelerated appreciation of its effective exchange rate." In past communiqués, the G7 simply called for large surplus countries such as China to move toward more flexible currencies.
European and US officials say China must let the yuan float more freely to help reduce its large current account surplus and contribute to the unwinding of global trade imbalances.
But while the yuan has gained about 4 percent against the dollar this year, it has fallen by roughly the same amount against the euro. Trichet added that it was encouraging to hear US Treasury Secretary Henry Paulson had reaffirmed that a strong dollar is in the US interest.
The dollar has tumbled by roughly 8 percent against the euro in 2007, hitting an all-time high this week above $1.43. It hit a fresh record low against a basket of six major currencies as details of the G7 statement emerged.
Speaking at the same briefing, Eurogroup head Jean-Claude Juncker said: "We will continue to monitor exchange rate markets closely, particularly in light of recent moves."
"It should be noted," Juncker added, "that the Bank of Japan believes Japan's economy is on a substantial path of recovery and that exchange rates should reflect this economic progress." The European delegation also touched on sovereign wealth funds, large state-run investment agencies that aim to invest part of their currency reserves in a variety of assets abroad.
Some officials have worried about the opaque nature of many such funds, which are thought to control some $2.2 trillion in assets, and have called for more transparency into their investment decisions and risk management practices. But European Union Economic and Monetary Affairs Commissioner Joaquin Almunia called for a balanced approach.
"We want to avoid any kind of projectionist temptations caused by sovereign wealth funds," he said. The G7 also commended the Financial Action Task Force in its communiqué for taking steps to protect the international financial system from the various money laundering and terrorist financing risks related to Iran. But when asked whether this could be read as a blank check for aggressive US actions against Tehran, Juncker demurred. "It is not a check," he said.
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