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Interest Rate

ECB holds interest rate for now, but Trichet hints at July hike

The European Central Bank keeps its key rate unchanged for now – but Trichet’s “strong vigilance” means one next month.

THE EUROPEAN CENTRAL BANK has left its key interest rate unchanged after its monthly meeting in Frankfurt – but has dropped strong hints that the interest rate will be increased next month.

Speaking after the meeting this lunchtime, ECB president Jean-Claude Trichet said the bank and the Eurozone nations needed to exercise “strong vigilance” – a regular signal used by Trichet to indicate that the rate would probably increase next time.

The key interest rate remains at 1.25 per cent for the time being, but is expected to be raised to around 2 per cent before the end of the year.

The relatively low interest rate has been maintained since the Eurozone debt crisis began to emerge in early 2009.

An increase would primarily be felt by consumers who hold tracker mortgages linked to the main ECB rate, who would have to face higher monthly repayments.

Other mortgage holders on variable interest rates will likely also face increases, when their creditors passed on the increased interest rate.

Responding to questions from reporters, Trichet insisted that an increased interest rate would not harm Europe’s weaker ‘peripheral’ economies like Ireland.

“When we solidly anchor inflation expectations in the Euro area as a whole, we are anchoring stability and also anchoring confidence,” he said.

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