Fighting inflation best way to deal with financial crisis: ECB chief

FRANKFURT, September 5, 2008 (AFP) – A monetary policy based on fighting inflation is the European Central Bank’s best weapon against volatile commodity prices and the ongoing financial crisis, ECB president Jean-Claude Trichet said on Friday. “We are committed to deliver price stability and will do what’s necessary to deliver price stability,” Trichet told a conference organised by Frankfurt University’s Center for Financial Studies.

Monetary policy had to have a clear idea of the way ahead, he said, especially in troubled economic times such as began a year ago following the collapse of the US market for high-risk, or subprime mortgages.

In Trichet’s view, the ECB mandate as laid out in the Maastricht Treaty and which sets price stability as its primary goal, is perfectly suited to meet the current challenges.

His comments will likely disappoint expectations for interest rate cuts in the near future to boost slumping eurozone economic activity.

On Thursday, Trichet underscored the need to prevent a second round of inflationary pressures that might be created by strong wage demands and said that the current inflation rate of 3.8 percent was cause for concern.

The ECB left its main lending rate unchanged at 4.25 percen