European Central Bank President Jean- Claude Trichet said the euro-area economy is strengthening faster than forecast and money markets are improving as the region recovers from its sovereign debt crisis.
“The available data for the third quarter are better than expected,” Trichet told reporters in Frankfurt today after the ECB’s Governing Council set its benchmark rate at a record low of 1 percent. “The market is functioning a little bit better.” The ECB’s main rate is still “appropriate,” he said, indicating officials see no immediate need to tighten policy.
The firming growth outlook and improving market conditions leaves Trichet with the challenge of signposting how the ECB will scale back its supply of unlimited cash to banks without throttling the recovery or roiling investors. He today declined to comment on the ECB’s plans, saying that the next key meeting will be in a month’s time.
The ECB sees the economy growing at a “moderate, but still uneven pace in an environment of uncertainty,” Trichet said.
Trichet also avoided saying whether he welcomed recent shifts in market lending rates, saying only that they reflect a “normalization” of conditions. The rate that banks charge each other to borrow funds for three months today rose to the highest in more than a year.
The euro was little changed after the remarks, trading at $1.3196 at 3:09 p.m. in Frankfurt compared with $1.3189 before the press conference.
Investors are indicating that the worst is over for the euro area. The single currency has rebounded 10 percent since June, Europe’s Stoxx 600 index has jumped 11 percent in the past month and relative yields on the region’s junk bonds are set to fall below their U.S. counterparts for the first time since June 2008.
The extra yield investors demand to hold speculative-grade corporate bonds issued by European companies instead of benchmark government debt has dropped to 656 basis points compared with 649 basis points in the U.S., Bank of America Merrill Lynch indexes show.
By Gabi Thesing and Jana Randow
Tags: debt crisis, economic, economic growth, economy recovery, european central bank, financial, Global Markets, investors, money
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