Europe's Central Bks Still Firmly On Tightening Bias
Thu, Jun 14 2007, 09:58 GMT
djnewswires.com
FOCUS: Europe's Central Bks Still Firmly On Tightening Bias
By Anita Greil and Nina Koeppen
Of DOW JONES NEWSWIRES
ZURICH (Dow Jones)-Europe's big central banks remain firmly on a hawkish footing, flagging continued inflation concerns and even signaling more interest rate hikes to come.
Switzerland's central bank Thursday hiked the band for three-month Swiss franc Libor, its key rate, to 2.0%-3.0%, targeting the middle of the new range, or 2.5%, up from 2.25% previously.
"Should economic momentum remain unchanged or should movements in the Swiss franc result in a further relaxation in monetary conditions, further increases in the interest rate are likely in the months ahead," said the Swiss National Bank.
In Frankfurt, only a week after last hiking rates, the European Central Bank said in its latest monthly bulletin that interest rates are "still on the accommodative side" and that it will monitor inflation trends very closely.
The report, similar in language to comments made by ECB President Jean-Claude Trichet last week, indicated to economists that the ECB will raise interest rates at least one more time this year if economic indicators continue coming in strong.
Also Thursday, the Bank of England said inflation expectations in the U.K. remained at a high level over the spring, and a growing number of people think interest rates will rise over the next 12 months, according to its latest inflation survey.
Conducted in May, the BOE survey found that the median prediction was for consumer price inflation of 2.7% over the coming year, unchanged from its February survey.
BOE Governor Mervyn King on Monday said the bank may need to tighten monetary policy again if capacity pressures, pricing intentions and inflation expectations remain elevated.
That means the BOE's Monetary Policy Committee is still highly likely to hike the policy rate to 5.75% in the third quarter, and does nothing to rule out the possibility of a further rise to 6% before year-end.
U.K. retail sales picked up on the month in May, led by higher sales in five out of the six sales sectors, the Office for National Statistics said Thursday. Retail sales rose 0.4% on the month and grew 3.9% in annual terms.
A tightening U.K. labor market, strong consumer spending continue to drive inflation and expectations of another BOE rate hike soon, said Alan Clarke, economist at BNP Pariba. "The Bank is running out of excuses for dragging its feet and given these we believe there is a strong case for a hike at the July meeting," he said.
In the euro zone, inflation held steady for the third consecutive month in May, in line with the European Central Bank's price stability target, according to the European Union statistics agency.
Held down by moderate wage growth, the annual rate of consumer price inflation in the 13 countries that share the euro was unchanged at 1.9%, the European Union's statistics agency said Thursday, confirming the flash estimate published May 31.
The ECB, however, has emphasized it is looking at medium to longer term trends, instead of current inflation trends.
The ECB cautioned in its newest monthly bulletin that the outlook for price developments in the euro zone remains subject to upside risks. The liquidity situation in the euro zone remains "ample" and money and credit growth "vigorous," the ECB said.
"Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted," the ECB said.
The ECB said that "conditions are in place for the euro area economy to continue to grow at a sustained rate."
"Given the high level of capacity utilization and movements in the exchange rate," said SNB President Jean-Pierre Roth, " there is a danger that higher production costs will increasingly be passed on to prices."
Natasha Brereton and Martin Gelnar contributed to this report. -By Nina Koeppen and Natasa Brereton, Dow Jones Newswires; +49 (0)69 2972 5509; nina.koeppen@dowjones.com
(END) Dow Jones Newswires
June 14, 2007 05:58 ET (09:58 GMT) |
