Wednesday, June 6, 2007

The ECB Increases the Interest Rate to 4% as Anticipated.


The European Central Bank raised interest rates a quarter of a percentage point to 4 percent as expected Wednesday to combat inflationary dangers in a strongly expanding economy.

The increase marks a doubling of euro zone rates in 18 months, raising questions in financial markets over how close the ECB may be to ending its rate hikes.

But strong ECB warnings on inflation risks have left dealers virtually certain that rates will reach at least 4.25 percent this year. They are awaiting clearer direction from ECB President Jean-Claude Trichet . . . .

"First of all, we need guidance on whether the ECB still regards its monetary policy as accommodative," said Holger Schmieding, European economist at Bank of America in London.

At 4 percent, most economists say ECB rates now are in neutral territory and no longer stimulate economic growth. They want to know whether restraint is needed to control price pressures.

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