european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank, paris, 5 october 2006. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to the press conference here in paris. i would particularly like to thank governor noyer for his kind hospitality and express our special gratitude to the staff of the banque de france for the excellent organisation of the meeting of the governing council. let me now report on the outcome of our meeting, which was also attended by the president of the eurogroup, prime minister juncker, and commissioner almunia. at today ’ s meeting, we decided to increase the key ecb interest rates by 25 basis points. this decision reflects the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses. today ’ s decision will contribute to ensuring that medium to longer - term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. also after today ’ s increase, the key ecb interest rates remain at low levels, money and credit growth are strong, and liquidity in the euro area is ample by all plausible measures. our monetary policy therefore continues to be accommodative. if our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation. the governing council will therefore continue to monitor very closely all developments so as to ensure price stability over the medium and longer term. turning first to the economic analysis, the quarter - on - quarter growth rate of real gdp in the euro area for the second quarter of 2006 was confirmed at 0. 9 %. moreover, since our previous meeting on 31 august, eurostat has revised upwards the growth data for the two preceding quarters, thereby confirming that a significant acceleration in economic expansion has taken place over the past few quarters. on the basis of the revised data, economic activity has been growing at a quarterly rate of 0. 7 % on average over the last four quarters, the unemployment rate has been on a falling trend, employment growth has recovered and employment expectations overall have remained favourable. all in all, the economic recovery now appears somewhat stronger than on the basis of earlier data. it has become more broadly based and is mainly supported by domestic demand. the available

period of time may help to sustain real income and may therefore stimulate spending. but even if we expect inflation rates to turn positive again by the end of this year, the weak economic outlook for the euro area is expected to keep domestic price pressures contained for some time. according to the eurosystem staff macroeconomic projections, hicp inflation in the euro area is likely to be very moderate, but above zero, on average this year. inflation is expected to pick up, but remain at a moderate level in 2010. forecasts produced by the european commission and other international organisations paint a similar picture. the risks to this outlook are viewed as broadly balanced. however, in the longer term, it is important that the current policy stimulus is withdrawn in due course. d. monetary and financing conditions let me now turn to the monetary analysis, which is particularly useful for assessing risks to price stability in the medium to long term. the latest money and credit data support the assessment of diminishing inflationary pressures in the medium term. the deceleration of broad money growth observed in 2008 increased towards the turn of the year and continues at a rapid pace. developments in money and credit aggregates have been volatile over the past few months. this may be explained partly by the sharp reduction in the key ecb interest rates, which may have encouraged shifts in the allocation of funds. if we disregard this volatility, the continued deceleration in the pace of underlying monetary expansion and in credit growth seems to reflect the sharp deterioration in economic activity. as regards financing conditions in the euro area, external financing costs have been declining since october last year, and particularly sharply since the start of this year. following policy interest rate cuts, bank lending rates have fallen significantly. this indicates that the pass - through mechanism from policy rates to the real economy has continued to function in recent months, even though there is evidence that banks ’ margins have widened. with credit spreads across all rating classes decreasing from their record highs and with stock prices rising, the overall cost of financing for euro area non - financial corporations is diminishing. in general, the recent positive signs from financial markets point to a gradual improvement in confidence among investors. policy measures i will now turn to the policy measures taken in response to the current crisis. both monetary and fiscal policy - makers have reacted in a forceful and timely manner, aiming to restore confidence. and indeed, as regards the eurosystem ’ s monetary policy and liquidity management measures, it seems