THE EUROPEAN CENTRAL Bank (ECB) has left its key interest rate unchanged at 1.25 per cent after a meeting in Helsinki today.
The decision was widely expected in the markets, where the main focus was on whether the bank’s head Jean-Claude Trichet’s used his news conference to indicate that another interest rate increase next month is on the cards.
The bank raised rates a quarter-point last month from the record low of 1 percent – the first increase since May, 2009 – and has made it clear that more increases are coming to contain inflation.
Those increases will come despite higher borrowing costs making life harder for bailed-out Greece, Portugal and Ireland – all of which are struggling with heavy government debt and slow economies.
Some think another increase could come as soon as next month’s meeting in June. The more aggressive the increases, the more confidence the ECB has in Europe’s economy despite the debt crisis.
In a press conference after the meeting, however, Trichet stopped short of indicating that an increase could be due next month – meaning it will be July before any such hike.
Trichet also failed to use his known key phrase of “strong vigilance” – which, if used, would have signalled an increase next month. Instead, Trichet warned of the need to “monitor very closely” the risk of higher inflation.
The moderate delay will come as a boost to Irish mortgage holders, for whom higher interest rates would mean higher monthly repayments in a market where many are already struggling.
But the countries with urgent debt problems make up only a small fraction of the overall eurozone economy, and the bank has made it clear it must find one rate that works for everyone. With economies like Germany’s speeding ahead and consumer prices rising at 2.8 percent a year — above the ECB’s target rate of just below 2 percent — economists expect further increases soon.
At the moment, economists expect the main rate to reach 2 percent by the end of this year in quarter-point stages.
The Bank of England, like the Federal Reserve, is not ready to raise its rates from record lows, and today left its key policy rate at 0.5 percent despite concerns about inflation running at 4 percent in March.
Additional reporting by AP
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