European Central Bank Raises Interest Rates

April 7th, 2011
in econ_news

Econintersect:  The following press release today from the European Central Bank:

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

  1. The interest rate on the main refinancing operations of the Eurosystem will be increased by 25 basis points to 1.25%, starting from the operation to be settled on 13 April 2011.

  2. The interest rate on the marginal lending facility will be increased by 25 basis points to 2.00%, with effect from 13 April 2011.

  3. The interest rate on the deposit facility will be increased by 25 basis points to 0.50%, with effect from 13 April 2011.

    Follow up:

China earlier this week boosted its prime rate to 6.31% - the fourth increase in 6 months to try the mitigate the inflationary effects.  This leaves the USA and Japan as the only major G-7 nations not to have increased prime rates since the Great Recession.

Jean-Claude Trichet, President of the ECB explained the rate hike:

The adjustment of the current very accommodative monetary policy stance is warranted in the light of upside risks to price stability that we have identified in our economic analysis. A cross-check with the signals from our monetary analysis indicates that while the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term. Our decision will contribute to keeping inflation expectations in the euro area firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to contribute to economic growth in the euro area. At the same time, interest rates across the entire maturity spectrum remain low. Thus, the stance of monetary policy remains accommodative and thereby continues to lend considerable support to economic activity and job creation. Recent economic data confirm that the underlying momentum of economic activity continues to be positive, with uncertainty remaining elevated. We will continue to monitor very closely all developments with respect to upside risks to price stability

source: ECB, ECB

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