Basel, Switzerland: The removal of non-standard measures used to fight the financial crisis does not signal an imminent increase in interest rates, European Central Bank (ECB) president Jean-Claude Trichet said, speaking on behalf of the world’s central bankers.
“The market has been improving and we can phase out non-conventional measures,” Trichet said at a press conference at the Bank for International Settlements in Basel, Switzerland, after chairing the so-called Global Economy Meeting on Monday. “What’s extremely important is that there’s no over-interpretation of the phasing out in terms of monetary policy.”
Central banks around the world have started to withdraw stimulus measures as the global economy gathers strength. The ECB said last week it will continue to tighten the terms of some of its loans to banks and the US Federal Reserve last month raised the discount rate, the rate it charges banks for direct loans.
Trichet said central banks worldwide were not in a position to take a common decision on the issue. “Still, the fact is that things are going better on functioning of markets all over the world,” he said, adding that global growth is relatively robust.
Trichet met in Basel his counterparts from the world’s largest central banks, including China’s Zhou Xiaochuan, Japan’s Masaaki Shirakawa and Germany’s Axel Weber.
The International Monetary Fund predicts the global economy will expand 3.9% in 2010 after it contracted 0.8% last year.
The ECB on 4 March kept borrowing costs at a record low of 1% and said it will tighten the terms of its three-month market operations next month.
US central bankers last month closed four emergency lending facilities and prepared to reverse or neutralize the more than $1 trillion in excess bank reserves they have pumped into the banking system. The Fed has kept its benchmark rate for overnight borrowing between banks in a range of zero to 0.25% since December 2008.
While central banks have started to withdraw some of their unprecedented liquidity measures, governments are facing the dilemma of bolstering the recovery while pushing down budget deficits. In Europe, French President Nicolas Sarkozy said on Sunday that euro-region countries were ready to rescue debt-laden Greece if needed in a bid to restore investor confidence.
Trichet said it’s important for global governments to demonstrate they have a medium-term path towards balanced budgets to help restore confidence.
“It’s important again that these policies are managed in a responsible fashion,” he said. “It’s the best way to create the environment for recovery.”
Zijing Wu and Klaus Wille contributed to this story.