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ECB to signal interest rate hike in July

ECB to signal interest rate hike in July

June 9th, 2011 in News

FRANKFURT, Germany (AP) - The European Central Bank is expected to signal at its monthly meeting Thursday that a rate increase is coming as early as next month.

Many economists expect bank President Jean-Claude Trichet to use the phrase "strong vigilance" to describe the bank's stance on controlling inflation. Those words are often code for a rate increase at the next month's meeting.

The bank, which is expected to leave interest rates on hold Thursday, raised its key rate a quarter point to 1.25 percent at its April meeting in a first step to show that it is serious about keeping a lid on inflation. Most economists think there will be at least two more such increases this year, since inflation in the 17 countries that use the euro is at 2.7 percent - above the bank's goal of just under 2 percent.

Trichet says the bank is determined to keep higher oil and food prices from being built into the economy through wage and price agreements.

Once Trichet has delivered his interest rate and inflation message, he will likely face questions at his post-decision news conference about EU efforts to keep Greece from defaulting on its debts. Germany is calling for Greece to swap maturing bonds for ones with longer maturities, even though the ECB is adamantly opposed to such a move.

Greece got a 110 billion ($161 billion) package of bailout loans last year from the other eurozone countries but is still struggling to come up with the money to pay its debts. Cut off from bond markets because it is viewed as too risky, it is dependent on credit from other euro countries and the International Monetary Fund. European officials are working on another package of aid.

An interest rate increase could make life harder for Greece, as well as Portugal and Ireland, which have also received rescue loans. But the debt crisis for now is confined to three small countries, while the rest of the eurozone is mostly enjoying solid growth that argues for higher interest rates to prevent growth from leading to inflation.

For now, the ECB is moving ahead of the U.S. Federal Reserve, which shows no sign of raising its key rate from 0-0.25 percent, and the Bank of England, which meets Thursday but is not expected to raise its main rate from a record low 0.5 percent.