Upbeat Trichet sees 2010 recovery

by Keiichi Hirose and Noriyuki Suzuki

Kyodo News

European Central Bank President Jean-Claude Trichet indicated that the global economic deterioration shows signs of halting and recovery may occur in 2010, repeating that decisions on another interest rate cut and unconventional measures would come in May.

“In a number of economies, including in Europe, we see that some surveys are demonstrating that things are not deteriorating more,” Trichet said in a recent interview in Tokyo. “But that does not change the fact that 2009 is a very difficult year.”

While the world needs to tackle the “evaporation of confidence” amid the financial crisis, an economic recovery could come “in the course of 2010,” helped by lower oil and commodity prices, coupled with the resilience of major emerging economies, Trichet said.

His comments came as the ECB is trying to shore up the struggling euro-zone economy, which the Organization for Economic Cooperation and Development expects to shrink 4.1 percent this year.

“One further rate cut is not excluded,” the ECB head said, but added bringing it to zero is “not at all something we would consider appropriate.”

The central bank trimmed its key interest rate a quarter percentage point earlier this month to an all-time low of 1.25 percent since the launch of the single European currency in 1999.

Trichet repeated his earlier remarks that ECB will decide on further unconventional measures at its next policy meeting May 7, without elaborating.

With interest rates close to zero, other central banks are going beyond the conventional method of cutting interest rates as such policy tools at their disposal are limited.

To buoy the private credit market, the U.S. Federal Reserve and the Bank of England have begun purchasing government bonds, and the Bank of Japan is buying commercial paper from financial institutions to provide liquidity.

Trichet said he welcomes U.S. Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner saying a strong dollar is in the interest of the United States.