Trichet’s Communiqué

1. ECB is to reactivate two of it’s most potent anti-crisis measures:

a. Will offer a six-month tender of unlimited size next week (first such tender in two-years).

b. Re-opening of the Securities Market Program (SMP). Under the program the ECB will buy government bonds in order to ensure that the market functions smoothly. Last executed five-months ago. This morning they purchased Portuguese and Irish sovereign debt to try and stem contagion fears (re-opening the program was not unanimous).

2. The ECB will keep its policy of lending unlimited amounts at its one-week, one-month and three-month operations until the end of the year (MRO). Trichet was not expected to comment on the bank’s liquidity policy for the fourth quarter until next month.

3. Trichet gave no indication that the ECB would hold off from further interest rate rises in the near future, policy remains ‘accommodative’. He said that economic growth is slowing and that the Central Bank is ‘monitoring very closely economic conditions’. Market will take this as a sign that rates will likely stay on ‘hold’ at the September meeting.

4. Trichet warned that risks to the medium-term price outlook ‘remain to the upside’ and that monetary liquidity remains ample and may facilitate the accommodation of price pressures’.

5. His tone was slightly more pessimistic than last month. ‘Continued moderation expansion is expected in the period ahead’. However, he said ‘uncertainty is particularly high’.

6. Trichet on Japan: He indicated that the Bank has always been very clear that ‘such interventions have to be made on the basis of a multilateral consensus and decisions’. Japan’s move was not done as part of a multilateral decision process. Japan’s Minister of Finance Noda stated that they ‘went alone’ This would suggest that a more coordinated global effort to stem the dollar’s slide in not on the table for now.

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