The European Central Bank raised interest rates in the eurozone for the first time in more than a year on Thursday as it stepped up efforts to control mounting inflation pressures.As expected, the ECB lifted its main interest rate by a quarter percentage point to 4.25 per cent - the first rise in eurozone borrowing costs since June last year.The increase comes just days after official figures showed eurozone inflation had hit 4 per cent, the highest since the launch of the euro in 1999 and more than double the ECB's target of an annual rate "below but close" to 2 per cent.Based on reconstructed-historic data, eurozone inflation was last higher in May 1992.Jean-Claude Trichet, ECB president, is expected at a press conference on Thursday to stress the central bank's hawkish credentials and determination to prevent the inflation surge caused by high oil prices feeding through into wage settlements and other costs.Financial markets will scrutinise his comments for signals on whether further interest rate increases are likely. With oil prices soaring to fresh highs, eurozone inflation rates are expected to rise still higher in coming months.
As expected, the ECB lifted its main interest rate by a quarter percentage point to 4.25 per cent - the first rise in eurozone borrowing costs since June last year.
The increase comes just days after official figures showed eurozone inflation had hit 4 per cent, the highest since the launch of the euro in 1999 and more than double the ECB's target of an annual rate "below but close" to 2 per cent.
Based on reconstructed-historic data, eurozone inflation was last higher in May 1992.
Jean-Claude Trichet, ECB president, is expected at a press conference on Thursday to stress the central bank's hawkish credentials and determination to prevent the inflation surge caused by high oil prices feeding through into wage settlements and other costs.
Financial markets will scrutinise his comments for signals on whether further interest rate increases are likely. With oil prices soaring to fresh highs, eurozone inflation rates are expected to rise still higher in coming months.
Bastard! When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
Only the second mechanism applies if the cause of inflation cannot be controlled by interest rates. Today the ECB announced that it intends to increase EU unemployment substantially in order to protect the economy. Or something.
To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment of increasing upside risks to price stability over the medium term, in a context of very vigorous money and credit growth and the absence thus far of significant constraints on bank loan supply.
If (as some suggest) banks in France (for example) were only making safe loans in the domestic market, then the lending levels won't change that much. Banks to need to continue "safe lending" to keep their cashflow up.
The problem in the UK is that a large percentage of lending was "unsafe" so it's sudden disappearance amounts to a credit crunch. If you are a safe bet (under the assumptions of say, 10 years ago) you can get money from a British bank right now, with few problems. The issue is that consumers and businesses had both adjusted to a different regime, so few of them qualify as safe bets right now.
