FRANKFURT (MNI) – The European Central Bank’s price stability
definition of close to but less than 2% has neither constrained growth
nor hindered employment, and it “could hardly be more closely aligned”
with the inflation goal of the U.S. Federal Reserve, ECB President
Jean-Claude Trichet said on Thursday.

His comment, at a central banking conference here, would seem to
downplay widely expressed concerns that the Fed — with its recent
renewal of quantitative easing — is playing with inflation fire.

Trichet also touched on the central bank’s exit strategy, saying
that an eventual tightening of interest rates could happen independently
of the ECB’s exit from non-standard liquidity measures and not
necessarily after it.

“We consider that we are not bound to unwind non-standard measures
before considering interest rate increases; we could do one or the other
or both,” Trichet said, reiterating what he has already said several
times before.

The comment would appear to leave the door open for the ECB to
maintain at least some of its generous non-conventional liquidity
operations in place for as long as it deems necessary.

On the other hand, Trichet also stressed that the ECB’s
non-standard measures were, by their very nature, temporary. Their use
in line with “the degree of dysfunctionality of markets that is
hampering the transmission mechanism,” he said. He also warned against
the potential danger of keeping them in place for too long.

“The central bank must guard against the danger that the necessary
measures in a crisis period would evolve into a dependency as conditions
normalise,” he said.

Trichet also noted the “still exceptionally demanding and uncertain
environment for the financial sector and the real economy,” and he
repeated his call for “a quantum leap of governance,” stressing that
public authorities need to preserve and reinforce their
creditworthiness.

“Every day I am even more convinced that this is absolutely
essential,” he said.

— Frankfurt Bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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