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ECB flags up April rate rise


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ECB flags up April rate rise

As the European Central Bank kept euro zone interest rates unchanged, despite rising inflation fears, ECB President Jean-Claude Trichet said the sense among the bank’s Governing Council is that a rate hike in April is “possible,” but not certain.

He said a final decision will depend on the latest data. Trichet said any subsequent move would “certainly not” be the start of a “series” of rate rises.

He added the decision to leave rates unchanged at a record low one percent this month was “unanimous.”

The strong indication of a rise in April shocked markets expecting a raise late this year. It puts the ECB in pole position to hike well before the US Federal Reserve and even the Bank of England, which analysts had expected to move first.

At a news conference Trichet dismissed the idea that a rate increase in April could be bigger than 25 basis points, saying such a scenario was “not the appropriate interpretation.”

The euro soared after Trichet spoke. At one stage it was as high as $1.3976, its strongest since 8 November, putting the single European currency on track to test the psychologically important $1.40 level.

Trichet said the ECB would exercise “strong vigilance” over rising inflation, deploying a phrase that in the past signalled a rate rise was only a month away.

Euro zone inflation accelerated to 2.4 percent last month, moving further above the ECB’s target of around but just below two percent.

In a fresh set of forecasts, ECB staff predicted that euro zone inflation would overshoot the central bank’s target this year, but fall back to below the two percent upper limit in 2012.

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