Growth in the euro zone is on a firm footing and interest rates are still low, European Central Bank President Jean-Claude Trichet said today, signalling further credit tightening ahead for the 12-nation region.
In his most positive assessment of growth prospects in a long time, Mr Trichet told a European parliament committee that the continued economic expansion looks virtually assured.
"Economic growth is broadly becoming more sustained," he said in the ECB's quarterly dialogue with the Economic and Monetary Affairs Committee.
Moreover the economy is growing close to the fastest level it can expand without generating inflationary pressures and looks set to maintain that pace, he said. Growth is "close to its potential on a sustained basis", he said.
Against this background, Mr Trichet said that even after three interest rate rises over the past six months, credit conditions are stimulative and support the economic expansion. Keeping inflation expectations low will be the most important contribution the ECB can make to keeping growth on track, he said.
"Our monetary policy in the euro area remains accommodative. It is essential to ensure that inflation expectations in the euro area remain firmly anchored at levels in line with our definition of price stability," he said.
His comments were in line with the expectations in financial markets for the ECB to raise its benchmark rate, now at 2.75 per cent, again in late August and to reach 3.25 per cent by the end of the year.