ECB President Jean-Claude Trichet (pictured above) gave a strong hint on Wednesday that an interest rate cut was not in the works as he vowed to fight inflation despite a major stock market correction.
"I trust that in all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations," he said.
"Also important is for the central bank to ensure an orderly functioning of the money markets at the level of interest rates required for anchoring the inflation expectations," he said in a speech before the European Parliament.
"It is what the ECB has been doing since the beginning of the turbulences, namely since the beginning of August last year," Trichet added.
The US Federal Reserve surprised nerve-wracked stock markets on Tuesday by slashing its main interest rate by three-quarters of a percentage point amid growing signs the world's biggest economy was lurching into recession.
However, with eurozone inflation running at its highest in over six years, the European Central Bank has raised the prospect of lifting its interest rates to keep price growth under control.
In the wake of Trichet's comments, European share prices weakened as the prospect that the ECB could follow in the Fed's steps evaporated.
Instead, Trichet stressed the importance of cooperation among regulators worldwide in tackling crisis.
"The financial market correction – it's a very significant correction with turbulent episodes – that we are observing provides a reminder of how a disturbance in a particular market segment can propagate across many markets and many countries," Trichet said.
While the ECB so far saw no reason to change its outlook for the eurozone economy, currently forecasting growth this year of 2 per cent, Trichet acknowledged emerging downside risks.
"I would say that the risks are on the downside when it comes to this basic scenario," he said. (AFP)
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