ECB rules out change in price stability definition

European Central Bank President Jean-Claude Trichet on Saturday stressed the importance of low inflation for confidence and categorically ruled out any change in the ECB's definition of price stability. Trichet, speaking to reporters after a meeting of the Group of 30's bankers and academics, Trichet dismissed a suggestion that allowing more inflation might help the economic recovery.
"It goes without saying that central banks are excluding inflation. We are there to deliver price stability and price stability in the medium term is a crucial element in activating confidence," he said. "It is absolutely out of the question to change anything in our definition of price stability," he said. The EBC aims to keep eurozone inflation below but close to 2 percent. Asked about the prospects for economic recovery, Trichet said the speed of economic contraction would probably slow from now on but positive growth rates were unlikely before 2010.
"At the level of the industrialised world, we are in an episode where you will have progressive flowing in terms of the fall in GDP, so we are likely to see again that the fall is diminishing," he said. "This could last for the rest of the year, with positive figures emerging next year." He added that in the developing world "we could see something more rapid materialising".
At the same news conference the chairman of the G-30, Jacob Frenkel, warned that "world trade flows are collapsing" and said the G-30 spent some time discussing what needed to be done about it. The Group also decided to look at ways to enhance the surveillance role the International Monetary Fund, said Frenkel, who is vice-chairman of the insurance giant AIG Inc. Singapore's finance minister, Tharman Shanmugaratnam, said there was a stong feeling among the G-30 that risks of protectionism were growing.
"Politicians are showing signs of getting more vocal and we have to be very on guard about this," he said, adding that there was often a difference between governments' anti-protectionist rhetoric and defacto protectionist measures. Shanmugaratnam also sounded cautious on recovery prospects, saying that while the worst of the recession may be over "it is too early to say a recovery is on the way".