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ECB Lifts Key Rate To 1.25% Despite Peripheral Troubles
inspector_monkfish
Posts: 9,276 Forumite
12:46 07Apr11 - ECB RAISES REFI RATE TO 1.25% FROM 1.00%
12:48 07Apr11 - ECB Lifts Key Rate To 1.25% Despite Peripheral Troubles
--ECB lifts benchmark rate to 1.25%
--Trichet to brief press at 1230 GMT
--Trichet expected to sound less hawkish than in March
--Trichet seen omitting "strong vigilance" message
FRANKFURT--The European Central Bank on Thursday raised its
benchmark interest rate to 1.25% from a historic low of 1%, as expected, making
it the first of the world's major central banks to initiate a cycle of raising
rates.
The move, which marks the ECB's first rate rise since July 2008, comes
despite the deepening debt crisis in the euro zone's periphery, after Portugal
Wednesday became the third nation in the 17-country euro block to ask for a
financial bailout from the European Union.
Markets and observers will now turn to the ECB's monthly press conference, to
commence at 1230 GMT, where ECB president Jean-Claude Trichet will give clues as to how the bank will proceed along its monetary policy path.
Trichet is expected to argue that a significant build-up of inflationary
pressure across the euro zone justifies the rate increase. Inflation in the
region hit a 29-month high of 2.6% in March, and it is widely forecast to
accelerate further in the coming months, to about 3% in June. That's well above
the ECB's objective of keeping inflation "below, but close to" 2% over the medium
term.
Trichet is expected to live up to his inflation-fighting credentials by
stressing that the Governing Council, the ECB's rate-setting body, remains
"prepared to act in a firm and timely manner" to ensure price stability in the
region.
But, at the same time, he is likely to tone down the hawkish rhetoric that
marked March's press statement. He is expected to omit the "strong vigilance"
phrase traditionally used to signal an upcoming rate rise.
If Trichet were to keep the "strong vigilance" phrase, markets would know
that the ECB means business in its efforts to combat inflation. In practical
terms, another rate increase could then come as early as May.
But it's more likely that Trichet will take a step down on the hawkometer by
saying that the Governing Council will monitor "very closely" all developments
over the period ahead. This would mean that rates will stay unchanged until June, at least.
Trichet is expected to stick to his inflation assessment, namely that "risks
to the medium-term outlook for price developments are on the upside." Maintaining that rhetoric would reinforce that the ECB remains "alert," or "permanently
alert" --other catch phrases he likes--against the backdrop of tightening price
pressures.
Some economists say Trichet may re-introduce the remark that interest rates
are "appropriate." Observers knew that something was amiss when he dropped that comment at the March press conference after it had been a mainstay of his opening statements since the main refinancing rate settled at 1% in May 2009.
Bringing it back today, would suggest the central bank has taken an assertive
step now to combat inflation, but that its next tightening move might not come
for another couple of months.
The ECB president may have more announcements in store. He may unveil a new plan to keep struggling banks afloat over the medium term. A number of banks, especially from Ireland but also from Greece and Portugal, are heavily dependent on central-bank funding.
A euro-zone central banking official told Dow Jones Newswires in late March
that the new ECB term-funding facility would aim to replace the use of so-called
Emergency Liquidity Assistance. ELA is a form of central-bank lending that is
meant to tide banks over short-term emergencies, but has become an essential form of funding for Irish banks since last summer. The financing is expected to come with strong conditions attached.
12:48 07Apr11 - ECB Lifts Key Rate To 1.25% Despite Peripheral Troubles
--ECB lifts benchmark rate to 1.25%
--Trichet to brief press at 1230 GMT
--Trichet expected to sound less hawkish than in March
--Trichet seen omitting "strong vigilance" message
FRANKFURT--The European Central Bank on Thursday raised its
benchmark interest rate to 1.25% from a historic low of 1%, as expected, making
it the first of the world's major central banks to initiate a cycle of raising
rates.
The move, which marks the ECB's first rate rise since July 2008, comes
despite the deepening debt crisis in the euro zone's periphery, after Portugal
Wednesday became the third nation in the 17-country euro block to ask for a
financial bailout from the European Union.
Markets and observers will now turn to the ECB's monthly press conference, to
commence at 1230 GMT, where ECB president Jean-Claude Trichet will give clues as to how the bank will proceed along its monetary policy path.
Trichet is expected to argue that a significant build-up of inflationary
pressure across the euro zone justifies the rate increase. Inflation in the
region hit a 29-month high of 2.6% in March, and it is widely forecast to
accelerate further in the coming months, to about 3% in June. That's well above
the ECB's objective of keeping inflation "below, but close to" 2% over the medium
term.
Trichet is expected to live up to his inflation-fighting credentials by
stressing that the Governing Council, the ECB's rate-setting body, remains
"prepared to act in a firm and timely manner" to ensure price stability in the
region.
But, at the same time, he is likely to tone down the hawkish rhetoric that
marked March's press statement. He is expected to omit the "strong vigilance"
phrase traditionally used to signal an upcoming rate rise.
If Trichet were to keep the "strong vigilance" phrase, markets would know
that the ECB means business in its efforts to combat inflation. In practical
terms, another rate increase could then come as early as May.
But it's more likely that Trichet will take a step down on the hawkometer by
saying that the Governing Council will monitor "very closely" all developments
over the period ahead. This would mean that rates will stay unchanged until June, at least.
Trichet is expected to stick to his inflation assessment, namely that "risks
to the medium-term outlook for price developments are on the upside." Maintaining that rhetoric would reinforce that the ECB remains "alert," or "permanently
alert" --other catch phrases he likes--against the backdrop of tightening price
pressures.
Some economists say Trichet may re-introduce the remark that interest rates
are "appropriate." Observers knew that something was amiss when he dropped that comment at the March press conference after it had been a mainstay of his opening statements since the main refinancing rate settled at 1% in May 2009.
Bringing it back today, would suggest the central bank has taken an assertive
step now to combat inflation, but that its next tightening move might not come
for another couple of months.
The ECB president may have more announcements in store. He may unveil a new plan to keep struggling banks afloat over the medium term. A number of banks, especially from Ireland but also from Greece and Portugal, are heavily dependent on central-bank funding.
A euro-zone central banking official told Dow Jones Newswires in late March
that the new ECB term-funding facility would aim to replace the use of so-called
Emergency Liquidity Assistance. ELA is a form of central-bank lending that is
meant to tide banks over short-term emergencies, but has become an essential form of funding for Irish banks since last summer. The financing is expected to come with strong conditions attached.
Please take the time to have a look around my Daughter's website www.daisypalmertrust.co.uk
(MSE Andrea says ok!)
(MSE Andrea says ok!)
0
Comments
-
How will this effect us?
I just heard a commentator stating that the danger with our rates is we may be forced to play catch up.
Is this what was meant?0 -
surely one of the main upsides of not being in the euro is that we retain power over interest rates decisions, so it would be a bit stupid to just put our rates up without an underlying economic reason to do so, just because they have.0
-
How will this effect us?
It should be depressing.
The main economies of Europe (excluding the ClubMed and Guinness one's) are clearly in a far stronger state than we are in.'In nature, there are neither rewards nor punishments - there are Consequences.'0 -
It should weaken the pounds vs the Euro. Not really a bad thing if you ask me.0
-
So they can put up interest rates to combat the same inflation that our interest rates would have no effect on? (apparently).Trichet is expected to argue that a significant build-up of inflationary
pressure across the euro zone justifies the rate increase. Inflation in the
region hit a 29-month high of 2.6% in March, and it is widely forecast to
accelerate further in the coming months, to about 3% in June. That's well above
the ECB's objective of keeping inflation "below, but close to" 2% over the medium
term.0 -
Graham_Devon wrote: »So they can put up interest rates to combat the same inflation that our interest rates would have no effect on? (apparently).
yes, because germany isn't as [EMAIL="f@cked"]f@cked[/EMAIL] as we are, and therefore they don't need to be as concerned about damaging economic growth.0 -
Well they are a much better slice of the world economy.0
-
It should be depressing.
The main economies of Europe (excluding the ClubMed and Guinness one's) are clearly in a far stronger state than we are in.
imagine how strong they would be if they didnt have the likes of ireland, greece, portugal and spain in their gang :eek:Please take the time to have a look around my Daughter's website www.daisypalmertrust.co.uk
(MSE Andrea says ok!)0 -
It should be depressing.
The main economies of Europe (excluding the ClubMed and Guinness one's) are clearly in a far stronger state than we are in.
Not a like-for-like comparison. They're still waiting for the main event in the Euro zone. We'll see how strong Germany is once their banks suffer massive defaults and their export markets are in tatters.0 -
Graham_Devon wrote: »So they can put up interest rates to combat the same inflation that our interest rates would have no effect on? (apparently).
Well that worked well for them.....
NOT.
“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0
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