Transcript of the Press Briefing
Central bank: ecb | Type: press_conference | Date: 2007-08-02

INTRODUCTORY STATEMENT

Trichet:Let me just say a few words and then I will be ready to respond to questions, as usual.
Recent economic developments and survey indicators confirm that sustained economic growth continued in the euro area through the second quarter. Rising oil prices, emerging capacity constraints and the potential for stronger wage and cost dynamics, among other factors, imply upside risks to price stability over the medium term. The existence of upside risks to price stability at medium to longer-term horizons is confirmed by the strength of the underlying rate of monetary expansion: strong vigilance is therefore of the essence to ensure that risks to price stability over the medium term do not materialise.
Both, our previous economic and monetary analysis as expressed in particular in the last press conference have been fully confirmed by the ongoing information we have received since the last meeting of the Governing Council. Let me also stress that we never pre-commit, we decide at the moment of the meeting of the Governing Council on the basis of the information that we have, facts and figures, and according to the judgement that we make at that moment. I re-emphasise that we never pre-commit.
Let me also say that we are experiencing a period of market nervousness, a period where we see volatility in markets in general and re-appreciation of risks. We think that these developments in financial markets deserve attention. Shifts in market sentiment need careful monitoring. We will continue to pay great attention to the developments in the market over the period to come.

QUESTION AND ANSWER SESSION

Just three quick questions: First of all, in your brief remarks, do you intend for us to reinterpret the meaning of “strong vigilance” as opposed to how it has been used in the past? My second question is: much of the nervousness that you describe and that we have been seeing in financial markets has to do with the unwinding of novel financial instruments, which we are now learning have become conduits for instability around the world, but I wondered whether you could also say whether you felt that was the whole picture or whether recent financial innovations were also contributing to the stability of financial markets? And my third question is: could you comment on the macroeconomic effect of rising interest rates through this year, especially now that long-term interest rates have done what they historically have done and now that risk premiums are being reassessed? Do you see macroeconomic effects of rising interest rates?