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GERMANY: ECB raises rates to 3.5 percent, as expected
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GERMANY: ECB raises rates to 3.5 percent, as expected

The European Central Bank (ECB) raised interest rates a quarter percentage point to 3.5 percent on Thursday (December 7), as expected, taking them to the highest level in five years to keep inflationary pressures in check in a strongly growing economy. "After today's increase, our monetary policy continues to be accomodative, with the key ECB interest rates remaining at low levels, money and credit growth strong, and liquidity in the euro area ample by all plausible measures," ECB President jean-Claude Trichet told reporters at a news conference in Frankfurt. "Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The Governing Council will monitor very closely all developments so that risks to price stability over the medium term do not materialise," Trichet said. He expressed confidence that "the conditions remain in place for the euro area economy to grow at solid rates around potential." "While some volatility in the quarterly growth rates is likely to emerge around the turn of the year, associated with the impact of changes in indirect taxes in a large euro area country, the medium-term outlook for economic activity remains favourable." "Helped in part by lower oil prices, global growth is robust, thereby providing support for euro area exports," Trichet said. All 71 analysts in a Reuters poll had expected the quarter-point rise at the ECB's last rate meeting of 2006 after President Jean-Claude Trichet upgraded the bank's inflation-fighting stance to "strong vigilance" in November. The move continues the ECB's year-long policy of taking away monetary stimulus. The last time euro zone interest rates were this high was in November 2001. Trichet explained the Governing Council's decision at a news conference. Earlier on Thursday the Bank of England held its key rate steady at 5 percent. Analysts will be keen for any sign on whether more rate tightening is in store for early 2007 and what impact a rise in German value-added tax, slower U.S. economic growth and a strong euro will have on ECB decisions for early 2007.

ITN Source | December 8, 2006