Many Reasons to Avoid Zero Rate Policy: ECB Trichet

Tokyo, April 19 (Jiji Press)--Visiting European Central Bank
President Jean-Claude Trichet has said there are "a great number of reasons"
that he considers a zero interest rate policy not appropriate for the
euro-zone economy.

He told a recent interview with Jiji Press that he is "not
criticizing what has been done in Japan," referring to the zero interest
rate policy that the Bank of Japan implemented between February 1999 and
August 2000 and again between March 2001 and July 2006 as a measure to cope
with the country's own financial crisis.
The U.S. Federal Reserve late last year lowered its federal funds
rate target to a range between zero and 0.25 pct in response to the credit
market meltdown.
"As regards the euro area, there are a number of reasons that we
trust are important... I don't want to embark on the list but there are a
great number of reasons," Trichet said, suggesting that the ECB will stop
short of lowering its key policy rate, which stands at 1.25 pct at present,
close to zero.
European policymakers have to take into account "the structures of
our economies, the nature of the shocks we have to cope with, the anchoring
of expectations and the features of the banking sector," he said.
Though he indicated that the ECB does not intend to follow in the
footsteps of the other major central banks, Trichet reaffirmed the ECB's
commitment to continue supplying the banking system with liquidity
unlimitedly at low rates "as long as needed and at least until January next
year."
He stressed that monetary policy management in the euro area is
primarily anchored to medium-term price stability, which is defined by the
ECB as inflation rates of below 2 pct but close to 2 pct. The ECB's
definition of price stability is "somewhat different from what existed in
the past in Japan and it's different from what exists today in the United
States," he said.
Trichet has said that the ECB will launch "nonstandard" policy
steps at a policy meeting on May 7. But he has distanced himself from
unorthodox steps taken by the Japanese, British and U.S. central banks,
including outright purchases of outstanding government bonds and bank-held
securities.