ECB rate appropriate, price falls temporary-Trichet

FRANKFURT Aug 6 (Reuters) - Euro zone interest rates remain appropriate, European Central Bank President Jean-Claude Trichet said on Thursday, after the bank kept rates at 1.0 percent for the third month in a row.

Trichet said negative inflation rates were temporary but price developments were likely to remain dampened, while the economy would remain weak over the rest of the year but the contraction was slowing down.

"Current rates remain appropriate," he told reporters at his monthly news conference. "Economic activity over the remainder of this year is likely to remain weak, although the pace of contraction is clearly slowing down." His comments are in line with analysts' expectations that they ECB will keep rates unchanged until the end of the third quarter of next year. [ECB/INT]

"We expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term," said Trichet.

Referring to 2010, he added: "After a phase of stabilisation a gradual recovery with positive quarterly growth rates is expected." (Reporting by Krista Hughes; editing by David Stamp)