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No surprise as ECB raises rates


No surprise as ECB raises rates


As expected, the European Central Bank raised the cost of borrowing on Thursday.

Its benchmark interest rate was increased by 0.25 percent to 1.5 percent.

ECB President Jean-Claude Trichet and his fellow policymakers are trying to fight euro zone inflation which remained at 2.7 percent in June. That was not as bad as had been feared but was still well above the ECB’s target of just under two percent.

The central bank for the 17-country single currency bloc’s increased its rates previously in April, becoming the first major central bank to lift interest rates after the intensification of the financial crisis.

Meanwhile in Britain, the Bank of England kept its key interest rate at a record low 0.5 despite much higher inflation in the UK.

It is likely to stay put for the rest of the year as the British economy struggles to gain momentum.

A stream of disappointing economic data had meant the no-change verdict was a foregone conclusion and there was no market reaction.

UK interest rates have stood at 0.5 percent since March 2009, when a deep recession and the threat of deflation prompted central banks around the world to slash rates to record lows.

Since then, inflation in Britain has soared to more than double the central bank’s 2 percent target, but the BoE has been reluctant to tighten monetary policy at a time when the economy is already feeling the pain of the government’s fiscal tightening.

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