ECB president says Credit Crisis is the limiting factor.

The European Central Bank President Jean-Claude Trichet has said that central banks are likely to have little elbow room to make changes to fiscal policy as the credit crunch turmoil has created a situation of uncertainty and so any risks are difficult to predict and manage.

The ECB has kept the benchmark interest rate static even though inflation at 4 percent in running at a 16 year high.

Accordingly the IMF recently cut is euro-zone growth forecasts and indicates that there is a 25 percent change of a worldwide recession.

The US Fed cut the benchmark interest rate by 3 percent since September whilst the Bank of England has also followed suit having lowered in to 5 percent.

However Triuchet focused on the inherent differences between the Fed and ECB who remain focused on fighting back inflation rather than a concern for economic growth.

Trichet said that by anchoring inflation expectations of growth will emerge, although some ECB policy makers have repeated the fact that there is no room for the bank to cut interest rates.

With inflation likely to break the 2 percent barrier by 2009 there are cynics who believe that the ECB cannot afford to cut interest rates now.

Story link: ECB president says Credit Crisis is the limiting factor.