European Central Bank Raises Rates to 4%; Further Hikes Uncertain
The European Central Bank raised its core interest rate to 4% from 3.75% Wednesday, as widely expected, but ECB President Jean-Claude Trichet refrained from using the now-familiar phrase "extreme vigilance" to signal further rate hikes.
Trichet continued to describe rates as "accommodative," however, when speaking at a news conference following the decision, suggesting the central bank considers them low enough to stimulate growth in the region and another rise is possible.
All 83 analysts polled by Reuters last week forecast the ECB would lift rates by 25 basis points at its June policy meeting. The hike marks a doubling in the borrowing rate for the 13 countries in the euro zone in 18 months.
"We expect only one further hike this year and the next one then in early 2008," Gertrud Traud, chief economist at Helaba, told "Power Lunch" following the announcement.
The lack of familiar "code words" may be the result of a change in communication policy for the bank, according to Axel Weber, president of Bundesbank and leading member of the governing council.
The use of verbal hints such as "extreme vigilance" may be stripped from statements at the end of the current rate-tightening period, he said in an interview with the Financial Times last week.
The Bank of England will also decide on interest rates when it meets on Thursday at noon London time. It is expected to keep rates on hold at 5.5%, but economists are wary after recent surprises.