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Europe hints at rate hike

TEXT OF STORY

Doug Krizner: The European Central Bank has signaled it will raise interest rates next month in spite of the recent turmoil in financial markets. And as Stephen Beard reports, this puts the ECB at odds with the Federal Reserve.


Stephen Beard: While speculation is rampant the Fed may be ready to cut its key interest rate, the European Central Bank is sending a different signal. The Bank is hinting that next month it will increase its main rate by .25 percent to 4.25 percent.

Like the Fed , the ECB has come under pressure to cut rates, but analysts say the bank believes that would be a strategic error. It could risk reigniting an unsustainable boom.

Jennifer McKeown of Capital Economics says the ECB is more worried about inflation:

Jennifer McKeown: With the money growth still very strong, with the labor market still improving, it does see upside risks to inflation going forward. And its mandate is to keep inflation below 2 percent.

But the German Chamber of Commerce believes the ECB has got it wrong. The Chamber says that with a credit crunch underway there is a risk of worldwide recession.

In London, this is Stephen Beard for Marketplace.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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