ECB Likely to Raise Benchmark Rates as Inflation Risk Grows
By Hellmuth Tromm
Frankfurt, June 3 (Bloomberg) -- The European Central Bank will
probably raise interest rates Thursday, the fifth increase in seven
months, as recovering economies and the decline of the euro against
the dollar threaten to push up inflation.
All 21 economists surveyed by Bloomberg News predicted the ECB will
boost its benchmark lending rate, the amount it charges commercial
banks for two-week loans. Eighteen forecast a quarter- point increase,
to 4 percent. Three expect a half-point gain.
ECB officials, who set rates based on expectations for inflation a year or
more in the future, have said they're concerned that faster economic
growth and the euro's slide, which boosts the cost of imports, will
prompt companies to raise prices. The region's money supply, a gauge
of inflationary trends that the ECB tracks, expanded at a record pace in
April.
``There's a growing need for action'' by the ECB, said Otmar Lang, an
economist at Deutsche Bank Global Markets Research.
ECB policy-makers have hinted that another increase in borrowing costs
is coming.
The central bank will be ``vigilant to ensure that growth is sustainable
and non-inflationary,'' said Jean-Claude Trichet, head of the Bank of
France and a member of the ECB's rate-setting panel. Otmar Issing, the
ECB chief economist, said the weak euro ``holds the danger of imported
inflation.''
Pressure on the ECB to keep raising interest rates may have been
lessened by Friday's U.S. employment report. An unexpected increase
in the jobless rate, to 4.1 percent in May from 3.9 percent in April,
prompted investors to scale back expectations for higher rates from the
Federal Reserve. That could mean fewer increases will be needed in
Europe as well, economists said.
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