ECB set to hike rates next week
By Pan Pylas |
April 1, 2011, Friday
|
Print Edition
Print Edition
INFLATION in the 17 euro countries spiked to the highest level in nearly two-and-a-half years in March, official figures showed yesterday - cementing market expectations that the European Central Bank will hike interest rates next week.
Eurostat, the EU's statistics office, said consumer prices in the eurozone were 2.6 percent higher in March than the year before. That's the highest rate since October 2008 and is way above the central bank's target of keeping inflation at "close to, but below 2 percent."
The increase was not anticipated - the consensus in the markets was for inflation to remain at 2.4 percent.
As this was Eurostat's "flash" estimate for inflation, it provided no details as to why inflation rose. Those will emerge in April, though economists expect rising energy and food costs to be behind the increase.
Over the past month, comments from the ECB have been increasingly hawkish on inflation. The bank's rate-setters, including president Jean-Claude Trichet, have hinted heavily the main interest rate will rise from the current record low of 1 percent at the next meeting on Thursday.
Michael Hewson, market analyst at CMC Markets, said the key now will be how hawkish Trichet is in the aftermath of next week's "increasingly likely" rate hike and in particular whether he will reiterate his call for "strong vigilance." Throughout his presidency, that's been code for a likely rate rise in the following month.
Mounting expectations that borrowing costs in the eurozone are on their way up have helped support the euro currency over the past few weeks. Following the data's release, the euro was trading 0.8 percent higher on the day at US$1.4228.
Interest rate hikes, or the presumption of interest rate rises, help the euro if other central banks don't do the same. The United States Federal Reserve is not likely to raise its super-low interest rates until the latter part of this year while the Bank of England is worried about higher borrowing costs on the fragile UK economy.
Eurostat, the EU's statistics office, said consumer prices in the eurozone were 2.6 percent higher in March than the year before. That's the highest rate since October 2008 and is way above the central bank's target of keeping inflation at "close to, but below 2 percent."
The increase was not anticipated - the consensus in the markets was for inflation to remain at 2.4 percent.
As this was Eurostat's "flash" estimate for inflation, it provided no details as to why inflation rose. Those will emerge in April, though economists expect rising energy and food costs to be behind the increase.
Over the past month, comments from the ECB have been increasingly hawkish on inflation. The bank's rate-setters, including president Jean-Claude Trichet, have hinted heavily the main interest rate will rise from the current record low of 1 percent at the next meeting on Thursday.
Michael Hewson, market analyst at CMC Markets, said the key now will be how hawkish Trichet is in the aftermath of next week's "increasingly likely" rate hike and in particular whether he will reiterate his call for "strong vigilance." Throughout his presidency, that's been code for a likely rate rise in the following month.
Mounting expectations that borrowing costs in the eurozone are on their way up have helped support the euro currency over the past few weeks. Following the data's release, the euro was trading 0.8 percent higher on the day at US$1.4228.
Interest rate hikes, or the presumption of interest rate rises, help the euro if other central banks don't do the same. The United States Federal Reserve is not likely to raise its super-low interest rates until the latter part of this year while the Bank of England is worried about higher borrowing costs on the fragile UK economy.
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