Magazine article Europe-East

Emu: Ecb Raises Key Rate in Spite of Member States' Reservations

Magazine article Europe-East

Emu: Ecb Raises Key Rate in Spite of Member States' Reservations

Article excerpt

The decision had been widely predicted and indeed sparked a dispute between the ECB and euro-zone countries. This is the first increase in rates after two and a half years unchanged. Deposit facility and marginal lending facility rates, which frame the main refinancing rate, have also been raised by a quarter of a point to 1.25% and 3.25% respectively.

Jean-Claude Juncker denounced the move before MEPs on November 29, indicating with more than a note of irony that if the ECB were to raise rates "I would conclude that it regards growth and growth prospects to be sufficiently robust as to be invulnerable". A few minutes before the official announcement of the ECB's decision, France's Prime Minister Dominique de Villepin also urged that "nothing be done to compromise growth in Europe". But their entreaties were all in vain.

Under pressure over the past few weeks, Jean-Claude Trichet nevertheless appeared serene when he appeared before journalists in Frankfurt to justify the "unanimous" decision by the ECB's Governing Council on a "modest increase" in interest rates. The main reason put forward by the ECB is the "increased threat to price stability" owing to the sharp increase in oil prices. "These risks have been collated with our monetary analysis, this decision is therefore justified and will anticipate any increase in inflation in line with price stability", Mr Trichet insisted. Regarding the threat that the decision might pose for growth, which remains weak, the ECB President remains convinced that the Bank's monetary policy "will continue to give significant backing to economic growth and job creation". …

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