Speaking to reporters in Frankfurt, Trichet said 'strong vigilance' was needed in relation to inflation. This is the sort of language usually used by the ECB chief to signal a rates rise the following month. Questioned by reporters after his opening statement, the ECB chief said the bank was 'in a mode where we might increase interest rates next month'. But he said the ECB was not signalling 'any particular pace' on future interest rate moves. He was speaking after the bank decided to keep its main interest rate unchanged at 1.25% today. Markets had expected the bank to follow up April's first interest rate increase in nearly three years with another quarter-point rise in July. Most economists think there will be at least two more rises this year as the bank tries to bring inflation back towards target. Inflation in the euro zone is currently running at 2.7% - above the bank's goal of just under 2%.
Trichet also said this afternoon that ECB forecasters had raised their forecast for euro zone inflation this year to 2.6% from 2.3%, though they also hiked their growth forecast from 1.7% to 1.9%. Over the past few months, Trichet has spelled out the bank's determination to prevent higher oil and food prices from being embedded in the euro zone economy through higher wage settlements. Meanwhile, the ECB chief said that the bank will maintain its exceptional policy of offering unlimited loans to commercial banks for up to three months until at least the end of 2011. The decision means that weakened banks in Greece, Ireland and Portugal, the three euro zone members bailed out by the EU and International Monetary Fund, will have ample access to cash for the coming months. Mr Trichet also stressed that the bank did not intend to see Greece default on its sovereign debt. There would be 'no credit event, no selective default' by Greece, the ECB President said in reference to financial market terms for Athens being unable to repay its debt. 'We exclude ourselves all concepts which would not be purely voluntary, without any element of compulsion,' Trichet said, leaving the door open to some sort of agreement with banks and other private creditors.
On Minister Richard Bruton's plans to overhaul JLC wage agreements, ECB President Jean-Claude Trichet said that while he does not want to enter the domestic policies of any euro zone state, he said that anything that goes in the direction of a more flexible and vibrant economy is good. He said that it is good to be cautious and prudent on delicate matters and verbal discipline is appropriate for the euro area as a whole.