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IMF chief Rato backs ECB monetary policy

IMF chief Rato backs ECB monetary policy
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The European Central Bank’s recent more hawkish stance on interest rates has analysts asking will they or won’t they. ECB president Jean-Claude Trichet, said they would “act decisively” if high oil prices push inflation up.

But past central bank rhetoric has come to nothing and Rodrigo Rato, the head of the International Monetary Fund, told Euronews he backs the ECB. He said: “We think that until the recovery consolidates clearly in Europe, the ECB monetary policy is correct. In Europe there is a lack of trust from consumers. In many countries the level of domestic consumption is very low, whereas the level of savings is high. That indicates that people somehow don’t trust the state of the economy.” Economists remain split on whether the cost of borrowing in the euro zone will go up soon. They remember similar talk from the ECB late last year, but then economic growth weakened and no inflationary spurt materialised. However, the futures markets are betting there will be a follow through. Interest rate futures have priced in as much as a 50% chance of a rate rise this year and the certainty of one by between March and June of 2006.
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