ECB Raises Rates to 3.75%, Further Hike Eyed, BOE Holds
The European Central Bank raised its key interest rate a quarter point to 3.75%, as widely expected, Thursday, and ECB President Jean-Claude Trichet indicated a further increase is to come. The Bank of England held rates steady for the second month in a row at 5.25%.
"After today's rate decision, our monetary policy continues to be on the accommodative side," said ECB President Jean-Claude Trichet, at a press conference following the decision, which could indicate that the ECB rate tightening cycle is set to continue.
Using the word "accommodative" has preceded rate hikes in the past but not necessarily in the following meeting.
Trichet also said that the euro zone's economic growth is moderating but robust and the medium term outlook for economic activity is favorable.
The European Central Bank will have to monitor "very closely" developments that pose a risk to price stability, added Trichet.
“Rates are close to what is generally considered neutral,” said Silvia Pepino, senior European economist at JP Morgan, to “Power Lunch Europe,” after the decision was announced.
Four percent will be the peak for the ECB key interest rate said Norbert Walter, chief economist at Deutsche Bank, to CNBC’s “Power Lunch Europe,” following the decision.
Recent market volatility is unlikely to have affected the rate decisions.
The ECB, which sets monetary policy for a 13-nation economy of 317 million people and more than 15% of global gross domestic product, hiked the rates in what is largely seen as an attempt to curb inflation. The BOE, which has also been cautious in terms of inflation, will be waiting to see the affect of previous rate hikes on the economy before moving again.