There were no surprises from the European Central Bank’s monthly policy committee meeting as the euro zone interest rate was kept on hold.
But ECB President Jean- Claude Trichet said the bank needs to show “vigilance’‘ on inflation, and he seemed to be preparing the ground for an interest-rate increase as soon as next month when he said: “Looking further ahead, the conditions remain in place for continued growth over the coming quarters. Activity in the world economy is expected to remain strong, providing continuing support for euro area exports. Investment growth should benefit from an extended period of very favourable financing conditions, balance sheet restructuring and gains in earnings and business efficiency.”
In other words, as the region’s economy strengthens, the euro zone can start to move from the current 2.5 towards the sort of interest rate levels seen in the UK, which is 4.5% the US – 4.75% – and Canada where it is 4%.
The Bank of Japan recently ended its five-year deflation-fighting policy, an indication that it is about to start raising rates.
Meanwhile, the Bank of England’s Monetary Policy Committee left the UK interest rate unchanged at four and a half per cent where it has been for the last nine months.
But British property prices rose sharply last month and manufacturing there is showing signs of recovery, leading to speculation about a future increase in UK rates.