As expected the European Central Bank has put up the cost of borrowing in the euro zone. ECB president Jean Claude Trichet, who is keen to tackle inflation while keeping the region’s economic recovery on track, said more interest rate increases may be “warranted’‘ and the bank will continue to monitor development very closely.
He told reporters: “We saw the risks to price stability on the upside, clearly, and that is true for the short term, medium and long term. And that we saw the risks for growth on the balance on a short term to medium term basis, and on the downside for a longer term, because of the risks that are at stake. This is our present analysis, we will see exactly what we will do, but our mandate is clear, we have to deliver price stability.”
The euro zone interest rate has increased from 2.75% to 3%. This is fourth rise since December and represents an acceleration in the pace from quarterly to every two months. Inflation, at two and a half percent, has been higher than the ECB would like for the last three months. Manufacturing and services companies are passing on to consumers higher costs, particularly from energy.