It was a bold move to head off inflation. The Governing Council of the European Central Bank has raised interest rates by a quarter of a percent to 2.25 percent, the first change in more than two years.
The decision went against advice from many EU finance ministers and the Organisation for Economic Co-operation and Development. The OECD said any increase should come in mid-2006, so the eurozone’s economic recovery could take a stronger hold. Jean-Claude Trichet, president of the European Central Bank, told reporters after the meeting in Frankfurt: “Our decision to increase interest rates was warranted so as to adjust our accommodative monetary policy stance while taking into account the risks to price stability that we identified in our economic analysis, cross-checked with our monetary analysis.” Speaking to EuroNews, Trichet rejected criticism that higher borrowing costs could cause a slowdown in growth: “Price stability improves confidence of the household, and when you are credible over time you have low market medium and long-term rates, which is good for growth and job creation.” Trichet reassured home owners that there would not be a series of interest rate rises. He also insisted that eurozone economies would be underpinned by improving global demand for exports, stronger consumer spending and wage growth, and domestic investment by private firms.