Trichet warns: there may be a rise in rates in July
Brussels - June 5, 2008 - The European Central Bank (ECB) has left interest rates at 4%, in line with market forecasts. The chairman of the entity, Jean Claude Trichet, has reported that have raised their projections for inflation and slightly growth for this year and the examination of the situation, "it is possible, although not safe, which raise rates at a small amount "in the July meeting. The European exchanges have reacted with sharp falls.
The market expected inflationary Trichet raised its tone after announcing the decision to keep interest rates stable at 4%. What is not imagined she would talk so openly about the possibility of an increase in the price of money in July.
"Part of the council thinks it is necessary to raise interest rates, while another part thinks it's necessary to raise rates, but later, and some do not consider it necessary," said Trichet, who anticipated that the next meeting Council of the ECB, after analyzing the situation, "it is possible, though not sure, that rise in rates in a small amount."
These words from Trichet after they arrive in the communiqué to explain today's decision indicated that risks to price stability "have grown more" and warned that the institution maintains a degree of "high alert" against inflation .
Inflation forecasts upwards
The ECB supports its intentions to raise interest rates sharply today with the revision upwards its inflation forecast for 2008 and 2009. The issuing agency now predicts a CPI in the euro zone for 2008 of between 3.2 and 3.6%, compared to 2.6 and 3.2% forecast in March, and between 1.8 and 3% for 2009, also above the projections made three months ago, when expected inflation of between 1.5 and 2.7% for next year.
According to Trichet, the upward revision in inflation "reflects an estimated oil prices and higher food and inflationary pressures in the service sector." The CPI will remain above 3% for a period more persistent than anticipated previously, apostilló the president of the European entity, whose objective of price stability is a rate close but still below 2%.
As for his vision of the evolution of the economy expected to grow this year by between 1.5 and 2.1%, compared with the range of between 1.3 and 2.1% who had augur in March, reflecting an upward revision of lower rank interval.
By 2009, the European bank portends an increase of Gross Domestic Product (GDP) in the euro zone of between 1 and 2%, which means it has revised downward projections March (1.3 and 2 3%) due to increased price of raw materials.
'Crusade' anti-inflationary
The world's major central banks have joined the anti-inflationary cause of the ECB. Even the Fed chairman, Ben Bernanke, has shown a growing concern about the progress of prices in recent weeks. On a more sensitive to prices, the president Trichet and the Council of the ECB seem to have felt more liberated to return to the load. More even with inflation, according to provisional data, rebounded in May from 3.3 to 3.6%.
The market had already come to give a 70% chance of a rate rise in September. Some analysts Goldman Sachs, Bank of americas or Royal Bank of Scotland believe that the next movement of rates in the region can be upwards but not announced as soon as the market.
The main argument of the experts who bet on a drop or keeping rates is the slowdown that the economy will suffer in the region the next few months.
United Kingdom
The Bank of England has also decided today to keep interest rates stable at 5%, as expected the 35 economists consulted by Thomson Financial. Fear of inflation has prompted this decision by the British entity, which has weighed more than the sharp slowdown in facing the UK economy.
The property sector is weakened by a fall in prices appears to be accelerating. This has joined the deterioration in consumer confidence, which is in its worst level in nearly two decades.
Source: El Economista