The European central bank released its monthly report on July 14, explaining the bank's action and assessment for the month, where the bank raised the key interest rates by 25 basis points to 1.5%, after the previous similar move back in April in order to maintain price stability in the zone.
The bank sees monetary expansion continuing to gradually recover, and the liquidity remains adequate in the zone.The bank reiterated the stance on non-standard measures that are temporary in nature and the provision of liquidity and that the allotment modes for refinancing operations will be adjusted when appropriate.
The banks sees risks to the economic outlook remains broadly balanced, while downside risks result from financial markets and also higher energy prices.
For price developments, euro area annual HICP inflation was 2.7% in June 2011 according to Eurostat's flash estimate.The critical fact here is that the rise in HICP inflation does not translate into second-round effects in price and wage-setting behavior and lead to broad-based inflationary pressures.
The ECB stressed that inflation expectations must remain firmly steady in line with the goal of maintaining inflation rates below, but close to, 2% over the medium term since inflation is expected to remain above 2.0% for the coming months with the upside risk to price stability.