At least 4 Central Banks have raised short rates in the past 24 hours. ECB, South Korea, Thailand and Turkey.... Turkey gets the door prize for the steepest increase 175 basis points.
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ECB raises rates,to move again if outlook confirmed
(Adds ECB news conference comments)
By Krista Hughes
MADRID, June 8 (Reuters) - The European Central Bank raised interest rates a quarter percentage point to a three-year high of 2.75 percent on Thursday, and will move again if its economic outlook is confirmed, ECB President Jean-Claude Trichet said.
Trichet said Thursday's rate increase was needed to ensure inflation expectations remained anchored in the face of medium-term inflation pressures, adding that euro zone rates were still low and its policy remained accommodative.
"Given the outlook for price developments and the dynamism of money and credit growth in the euro area, we will continue to monitor closely all developments to ensure price stability over the medium and longer term," he said. "If our assumptions are confirmed ... then progressive withdrawal of monetary accommodation will be warranted."
The ECB's Governing Council shied away from a half percentage point increase, which a minority of traders had forecast. But the bank's staff raised their inflation projections for this year, in a sign that more aggressive rate rises may be needed to get inflation back under control.
Staff now see inflation in 2006 around 2.3 percent, up from 2.2 percent forecast three months earlier, though the 2.2-percent mid-point forecast for 2007 remained unchanged.
Soaring oil costs and widespread gains in other raw materials driven by robust global economic growth have made the ECB's goal of getting inflation just below 2 percent elusive.
But the central bank has shown increased determination to quash inflationary pressure now that euro zone economic recovery looks secure. Thursday's rate rise is the third since December 2005, and was widely expected.
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The gloom hit Turkish assets, which reversed the gains made late on Wednesday when the central bank raised interest rates by a steep 175 basis points -- more than three times what most analysts had expected -- to stem rising inflation.
"The weakness this morning is not specific to Turkish markets. Not only is the emerging market sentiment poor but equities are also selling off," a trader in London said, adding that offshore accounts were leading the selling.
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The Bank of Thailand raised its key interest rate by a quarter of a percentage point to 5%, citing a higher-than-expected inflation rate, but hinted the rate increase may be the last in this tightening cycle.
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SEOUL, June 8 (Reuters) - South Korea unexpectedly raised interest rates on Thursday to a three-year high, forecasting a pick-up in inflation and brushing aside the potential risks to economic growth posed by a strong won and steep oil prices.
The central bank's policy board lifted its overnight call rate target by a quarter-percentage point to 4.25 percent, the fourth rise in the rate since October and its highest level since early May 2003.
"The Bank of Korea views the economy as continuing to exhibit upward momentum, with exports, private consumption and capital investment all growing," Bank of Korea Governor Lee Seong-tae told a news conference.
"Although a strong won and a fall in farm product prices have helped contain inflation, oil prices will likely remain firm, and with the recovery in domestic demand lasting more than a year, inflation pressure will grow."
Only four of 10 economists polled by Reuters earlier this week had forecast that the central bank would increase rates. Six had expected no change. |
