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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 rate by a quarter of a percentage point to 3.25 percent on Thursday _ a move that will likely mean higher borrowing costs on auto loans and mortgages for residents in the 12 nations that use the euro.
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. A majority 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 December, when the euro zone's economy started picking up. The recovery has been broadly sustained, with demand for credit still strong in the 12-nation zone that has more than 313 million people and a combined gross domestic product that accounts for 14.8 percent of the world's GDP.
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.
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AP Business Writer Matt Moore in Stockholm, Sweden, contributed to this report.


Updated : 2020-12-04 07:43 GMT+08:00