THE GOVERNING BOARD of the European Central Bank meets today to decide whether to increase its main interest rate - with investors keeping their ears pricked for one particular phrase which could indicate an increase.
Today’s meeting in Helsinki is not expected to decide on an immediate hike in interest rates – but many investors expect an increase to come in either June or July, given the steady rise of inflation throughout most of the Eurozone.
Reuters suggests that investors will be listening closely to the language of ECB president Jean-Claude Trichet – whose use of the phrase “strong vigilance” in March was a precursor to a 0.25 per cent increase in April.
If Trichet uses the phrase again today, the markets will immediately respond in anticipation of the increase next June. If he doesn’t, they will expect it to come in July anyway.
Last month’s increase was the first in two years, and most expect the rates to continue rising in light of the economic recovery in the Eurozone’s larger states of France and Germany.
With Eurozone inflation running at an average of 2.8 per cent last month, the ECB will also be keen to increase the general supply of cash.
The increase will mean difficulties for Irish mortgage holders, though, who will see increases to variable rates within days of an ECB increase, while tracker mortgage interest rates would increase instantaneously.
The location of today’s meeting is also noteworthy – as Helsinki hosts ongoing talks aimed at forming a new government after last month’s general election, in which the anti-bailout True Finns party won enough seats to be part of the next coalition.
If the True Finns do form part of the next government, Finland could veto the bailout currently being prepared for Portugal.
The value of the Euro rose this morning in advance of the summit, with the single currency trading at US$1.4891 – though the dollar is near a three-year low at present.
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