ECB set to raise interest rates despite debt crisis

European Central Bank expected to focus on ‘day job’ of fighting inflation at its monthly meeting in Frankfurt – while the Bank of England’s MPC is set to leave rates on hold The eurozone debt crisis will not stop the European Central Bank raising interest rates for a second time this year on Thursday as it focuses on the “day job” of fighting inflation, economists predicted. The central bank that sets monetary policy for the 17-country eurozone is universally expected to lift its benchmark rate by a quarter point to 1.5% at its meeting in Frankfurt, led by president Jean-Claude Trichet. City analysts reckon this could be followed by another rate rise towards the end of the year. The ECB’s willingness to battle inflation is in stark contrast to the stance adopted by his counterparts in London. The majority on the Bank of England’s monetary policy committee, led by governor Sir Mervyn King, have chosen to ignore high inflation and argued for some time that interest rates need to stay at a record low of 0.5% to support the faltering economy. The Bank will announce its decision at noon while the ECB’s decision is due 45 minutes later, followed by a press conference hosted by Trichet. After supporting banks with unlimited cash through the crisis, the ECB has moved to normalise European money markets. Trichet’s patience with European leaders is starting to run thin as he urges them to reduce their budget deficits. “Trichet has drawn a line in the sand on Greece and he’s now focusing on the day job,” Jacques Cailloux, chief European economist at Royal Bank of Scotland in London told Bloomberg News. “The ECB has done more than governments have to prop up the euro area and it really is losing patience with political leaders. It’s up to them to fix the problem.” Rattled The debt crisis entered a new stage this week when markets were rattled by ratings agency Moody’s downgrade of Portugal’s debt to junk status. The decision, which came on Tuesday as European leaders try to hammer out the details of a new bailout for Greece, was sharply criticised by European officials. Stock markets rose ahead of the rate decisions, with the FTSE 100 index in London up 11 points at 6014.02. Germany’s Dax climbed more than 30 points to 7461.85 while France’s CAC added 18.5 points to 3879.84. The euro lost ground, though, after Moody’s cut its rating on the government-backed debt issued by Portugal’s banks. Trichet met Greece’s finance minister Evangelos Venizelos in Frankfurt on Thursday to discuss the country’s privatisation programme and the banking system. Ken Wattret at BNP Paribas in London said: “Recent references to ‘strong vigilance’ [on inflation] have reinforced expectations of another ECB rate hike today and shifted attention to the signals about how policy will evolve thereafter. Risks to price stability should remain ‘on the upside’, implying a bias to tighten … We expect the ECB to press on with rate hikes beyond July, assuming that the problems in Greece do not turn ‘systemic’.” European Central Bank Europe European debt crisis Interest rates Economics Bank of England Julia Kollewe guardian.co.uk

Posted by on July 7, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.