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ECB drops more hints on rate rise


ECB drops more hints on rate rise


The European Central Bank is ready to take decisive and timely action to guard against the risks of inflation rising further. So says ECB policymaker Yves Mersch, head of Luxembourg’s central bank.

That is the latest ECB signal of an increase in the cost of borrowing, almost certainly next month. It comes despite Japan’s earthquake, tsunami and nuclear disasters cast doubt on the global economic recovery.

Mersch’s comments reaffirm ECB President Jean-Claude Trichet’s surprise announcement on 3rd March that an April rate rise was possible.

“It is essential that the recent rise in inflation does not lead to generalized inflation pressures in the medium term,” Mersch said.

However, Mersch said inflationary risks were clearly on the upside, an additional hint that the 17-country bloc’s central bank is still on course to raise interest rates next month. “We have indicated very high vigilance for the period that will take us to the decision of April … and we will take the appropriate decisions in order to guarantee price stability in the medium term,” he told a news conference in Luxembourg.

Mersch’s language was similar to the phrasing Trichet used on 3rd March, when he said the ECB would exercise “strong vigilance” over rising inflation — a term that in the past signalled a rate rise was only a month away.

The ECB has kept its rates on hold at a record low of one percent since May 2009.

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