euro|topics - ECB to decide on the prime rate

Main focus of Thursday, July 3, 2008

ECB to decide on the prime rate

The European Central Bank will decide today on whether to raise the key interest rate for the Eurozone. Experts across Europe anticipate a rise of at least 0.25 percent. But the planned rise is controversial: it could weaken the economy and put pressure on consumers.

Il Giornale - Italy

Il Giornale sees the ECB's interest rate raise as a far-reaching decision: "The long wait is coming to an end. Today, at around 1:45 pm, nothing unexpected will take place: the ECB will ... raise the key interest rate. ... It was to be expected that President of the ECB Jean-Claude Trichet would not bow to the pressure of certain governments which demonstrated a lack of diplomacy. Trichet has always stressed the autonomy of the institution and the legitimacy of the unpopular decision. He has also repeatedly emphasised that the bank would react with resoluteness - a choice of words that can only lead one to conclude that the measure will have consequences." (03/07/2008)

Financial Times - United Kingdom

Ciaran O'Hagan, fixed income strategist at the investment bank Société Générale, calls in the Financial Times for a clear signal from the European Central Bank: "The 25 basis-point rise in interest rates ... is nothing more than a token move. It will do little to calm expectations of yet more inflation over the summer. It will also have little impact on the economic outlook. ... A sharp reduction in western consumption would ease the destabilising impact of the commodity price shock on developing countries and is environmentally friendly. Such considerations do not concern the monetary authorities. The onus is rather on western governments to support policies that favour both macroeconomic and geopolitical stability. Yet the ECB cannot stand idly by and engage in wishful thinking. Luckily, investors currently see the ECB's inflation-fighting credentials as credible. ... There is now a window of opportunity for the ECB to reinforce that credibility and raise rates by far more than the market expects. It should not be allowed to pass." (02/07/2008)

Helsingin Sanomat - Finland

In its leading article, the Finnish daily Helsingin Sanomat calls for political independence for the European Central Bank. "Political leaders feel that raising interest rates will endanger economic growth, and call such a move absurd. ... And the unions stress that inflation cannot be controlled in this way. ... Europe's leading decision makers are attempting to persuade those responsible at the Central Bank to adhere to the previous strict rate. The ECB has intentionally isolated itself from political influence so as to maintain the credibility of an independent decision maker on fiscal policy. ... If it bows to pressure now it will suffer a loss in sovereignty." (03/07/2008)

Correio da Manhã - Portugal

The Correio da Manhã complains that the ECB's plans to raise the key interest rate will place a heavy burden on consumers: "The price of goods and services is rising with each month that passes. Some economists describe this inflation as the hidden tax that is eating away at families' buying power. The European Central Bank is desperately fighting against this phenomenon, but ECB President Jean-Claude Trichet is about to lose the battle. Inflation is at four percent in the Eurozone. ... Trichet has said that there is a risk that inflation could explode out of control, and this is why he will announce an increase in the base interest rate today - a decision that will lead directly to an increase in the mortgage interest paid by millions of families who are already struggling with rising food and fuel prices from month to month. Starting today Europe's families will have even less money. If we continue like this things will only get more and more difficult, Trichet!" (03/07/2008)

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