June 11th, 2008
Ecb Leaves Benchmark Rate At Six-Year High To Fight Inflation
The European Central Bank kept interest rates at a six-year high today to fight inflation even as the euro-region economy cools.
ECB policy makers meeting in Frankfurt left the benchmark lending rate at 4 percent, as predicted by all 59 economists in a Bloomberg News survey. The bank will wait until at least February to lower borrowing costs, according to a separate survey.
The ECB is concerned that unions will push through demands for higher wages and companies will lift prices to compensate for record energy and food costs, which have fueled the fastest inflation in 16 years. Price increases are also draining consumers‘ purchasing power, weighing on an economy already struggling with a credit squeeze and the stronger euro.
“The ECB is trapped,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “We have the problem of persistently high inflation rates, while growth is weakening. I expect them to keep rates on hold for a very long time.”
ECB President Jean-Claude Trichet will hold a press conference at 2:30 p.m. to explain today’s decision.
Separately, the Bank of England kept its key rate at 5 percent. Central banks in Indonesia and the Philippines increased rates today, joining policy makers across Asia who are raising borrowing costs to tackle runaway inflation.
The U.S. Federal Reserve has reduced its main lending rate seven times since mid-September, to 2 percent from 5.25 percent, after the collapse of the subprime mortgage market drove the world’s largest economy to the brink of a recession.
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