Debate Politics Forums - View Single Post - European Central Bank Likely to Raise Rates

donsutherland1 · 07-02-08, 09:57 AM

Tomorrow, the European Central Bank (ECB) is widely expected to increase its benchmark interest rate by 25 basis points to 4.25% in the face of a continuing increase in inflation in the Eurozone area. In addition, the ECB President Jean-Claude Trichet will likely issue a toughly worded statement on behalf of the ECB explaining the decision and reaffirming the ECB’s commitment to price stability. Some elements of that statement relevant to inflation could include:

• The decision to raise the benchmark rate will help ensure that inflation expectations remain anchored.
• The Harmonized Index of Consumer Prices (HICP) “has remained above 3% for the past eight months.”
• The HICP reached 4.0% in June 2008.
• The risks to price stability over the medium-term have continued to increase.
• Inflationary pressures have remained more persistent than previously expected.
• Higher than anticipated wage growth could emerge, increasing the risk of “second round effects.”
• Timely and firm action will help prevent “second-round effects” and reduce the risks to medium-term price stability.
• The ECB remains determined to ensure that medium- and long-term inflation expectations remain anchored.
• The ECB will continue to monitor developments.

It is possible that the ECB could also cite a spreading of inflationary pressures into the services sector. It could also indicate that there is a risk that a wage-price spiral could begin to develop and urge participants in wage-related negotiations to avoid steps that could aggravate current inflationary pressures.

Finally, the ECB is not likely to close the door on additional interest rate hikes.

07-02-08, 09:57 AM	#1 (permalink)
donsutherland1 Moderator Mod team member Join Date: Oct 2007 Last Online: Today 12:29 PM Location: New York Posts: 2,467 Thanks: 814 Thanked 1,571 Times in 877 Posts Lean: Centrist Gender: Awards:	European Central Bank Likely to Raise Rates Tomorrow, the European Central Bank (ECB) is widely expected to increase its benchmark interest rate by 25 basis points to 4.25% in the face of a continuing increase in inflation in the Eurozone area. In addition, the ECB President Jean-Claude Trichet will likely issue a toughly worded statement on behalf of the ECB explaining the decision and reaffirming the ECB’s commitment to price stability. Some elements of that statement relevant to inflation could include: • The decision to raise the benchmark rate will help ensure that inflation expectations remain anchored. • The Harmonized Index of Consumer Prices (HICP) “has remained above 3% for the past eight months.” • The HICP reached 4.0% in June 2008. • The risks to price stability over the medium-term have continued to increase. • Inflationary pressures have remained more persistent than previously expected. • Higher than anticipated wage growth could emerge, increasing the risk of “second round effects.” • Timely and firm action will help prevent “second-round effects” and reduce the risks to medium-term price stability. • The ECB remains determined to ensure that medium- and long-term inflation expectations remain anchored. • The ECB will continue to monitor developments. It is possible that the ECB could also cite a spreading of inflationary pressures into the services sector. It could also indicate that there is a risk that a wage-price spiral could begin to develop and urge participants in wage-related negotiations to avoid steps that could aggravate current inflationary pressures. Finally, the ECB is not likely to close the door on additional interest rate hikes.

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