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ECB raises eurozone rates to 4% ECB raises eurozone rates to 4%
(about 1 hour later)
The European Central Bank (ECB) has raised interest rates for the eurozone to 4% from 3.75%.The European Central Bank (ECB) has raised interest rates for the eurozone to 4% from 3.75%.
The increase takes rates in the area to their highest level for six years and means they have doubled in 18 months.The increase takes rates in the area to their highest level for six years and means they have doubled in 18 months.
The rise had been expected following a series of inflationary warnings from ECB members in recent weeks.The rise had been expected following a series of inflationary warnings from ECB members in recent weeks.
The news conference following the rate decision will be scrutinised to see if ECB president Jean-Claude Trichet gives any clues on further rate moves. At his news conference, ECB president Jean-Claude used a form of words to suggest there may be more rate rises this year, but probably not next month.
The eurozone economies, especially Germany, have been growing strongly in 2007.
Unemployment is at its lowest level since the launch of the euro while confidence is high and business activity is expanding.
Mr Trichet said that eurozone monetary policy is "still on the accomodative side," which analysts interpreted to mean that he was prepared to allow this growth to continue.
'Monitor closely'
If Mr Trichet had dropped the word "accomodative" from the statement, it would have suggested that rates were approaching their peak.
And the ECB president did not use the term "strong vigilance", which he used in May as a signal that rates would rise this month.
He said that the Governing Council would "monitor closely all developments".
In the past, saying that he was watching inflation "very closely" meant that a rise was a few months away.
The ECB's benchmark rate is the minimum bid rate for its regular refinancing operations, which is the one that has been raised from 3.75% to 4%.The ECB's benchmark rate is the minimum bid rate for its regular refinancing operations, which is the one that has been raised from 3.75% to 4%.
Its two other key rates have gone up by the same amount.Its two other key rates have gone up by the same amount.
'Strong vigilance'
The deposit rate is now 3% and the marginal lending rate is 5%.The deposit rate is now 3% and the marginal lending rate is 5%.
The precise wording of the statement read out by Mr Trichet at his news conference is crucial.
Last month he said that "strong vigilance" was needed to keep inflation under control, which was taken as a signal that rates would go up this month.
"First of all, we need guidance on whether the ECB still regards its monetary policy as accommodative," said Holger Schmieding, European economist at Bank of America.
If the word "accomodative" is not used then it will be taken as a sign that interest rates are approaching a peak.
The eurozone economies, especially Germany, have been growing strongly in 2007.
Unemployment is at its lowest level since the launch of the euro while confidence is high and business activity is expanding.
But Mr Trichet is not expected to signal another rise straight away, with clouds on the horizon such as problems in the US housing market and uncertainty about Chinese stock markets.