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Economists expecting quarter-point ECB rate rise, signs on further hikes

Economists expecting quarter-point ECB rate rise, signs on further hikes

The European Central Bank, sticking to its tough line on inflation, raised its key interest by a quarter of a percentage point Thursday to 3.25 percent.
While the increase was expected, analysts and economists will be looking for clues about future rate direction from Bank President Jean-Claude Trichet, as the inflation threat appears to be receding.
Trichet had all but declared plans for another rate rise after the last meeting in August, and 53 economists polled by Dow Jones Newswires were unanimous in their expectation that the bank would follow through with a hike.
All but one of the economists predicted the quarter-point increase and 45 also forecast that the ECB's key refinancing rate will reach 3.5 percent by the end of the year.
Thursday's move was the fifth quarter-point rise since last December, when the euro zone's economy started picking up. The recovery has been broadly sustained, with demand for credit still looking strong in the 12-nation zone as the bank's Governing Council prepared to meet.
Nevertheless, inflation appeared to pose less of a threat in September, when euro-zone prices were up 1.8 percent over the preceding 12 months, according to the statistics agency Eurostat _ below the ECB's 2 percent target rate for the first time since January 2005.
ECB council member Guy Quaden cautioned last month that the bank should not be seen as sticking automatically to a programmed series of rate rises.
"We will evaluate month after month the prospects for activity and inflation. We don't follow a predetermined course of action," Quaden said.
The European Trade Union Confederation had urged the ECB to refrain from further rate rises. Otherwise, General Secretary John Monks said, the bank would be in danger of choking off economic growth by hiking rates too rapidly in anticipation of wage increases.
"If the euro area is to experience continued growth, then the recovery needs to become self-reliant," Monks said.
"European workers need a raise, and the ECB must realize that reasonable wage increases are part of the solution and not part of the problem."
The confederation published a study Wednesday suggesting that the euro zone's average annual wage growth currently stands at 2.5 percent, "light years" from the 3.5 percent-4.5 percent range in which it can pose a serious inflationary risk.
But Trichet's language at the last gathering, where he pledged "strong vigilance," was seen as a clear sign that a rate rise would follow _ particularly in the presence of inflationary factors such as high oil prices and strong financial liquidity.
Commerzbank economist Michael Schubert said recent hawkish rhetoric from the ECB suggested it would "stick to its key message" that further gradual monetary tightening is still warranted.
A repeat of that statement could suggest that rates are set to keep on rising next year, ECB-watchers say, beyond the 3.5 percent expected by December.
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AP Business Writer Matt Moore in Stockholm contributed to this report.
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On the Net:
http://www.etuc.org/IMG/pdf/price_stability-study.pdf


Updated : 2021-07-30 08:37 GMT+08:00