The disparity between U.S. and euro zone interest rates is starting to cause problems, French Economy Minister Christine Lagarde told CNBC Monday, adding that Europe’s rampant inflation will ease.
The European Central Bank has held rates steady at 4 percent since June 2007 in the hope of quelling the region’s rising prices, which have recently hit a new high of 3.6 percent.
But, signs that the Euro Zone economies are feeling the pain of the global credit crunch have begun to emerge with the European Commission confirming it expects growth to slow dramatically in 2008.
“Out forecast, as far as inflation is concerned, is that it will reach a peak … the average rate of inflation is not gong to run at the rate it has run for the last 3 months,” Lagarde said.
The Federal Reserve has slashed U.S. interest rates to 2.25 percent since the subprime crisis began last summer, widening the gap between the two central bank’s re-financing rates.
Lagarde refused to label European interest rates as too high, when speaking to CNBC, but said the spread was “beginning to create an issue.”