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ECB could raise interest rates

Megan Williams Jan 11, 2008
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ECB could raise interest rates

Megan Williams Jan 11, 2008
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TEXT OF STORY

Doug Krizner: Now, the Fed may be hinting about lower rates, but as Megan Williams reports, the European Central Bank seems headed in the opposite direction.


Megan Williams: Keep wages down if you don’t want an interest rate hike. That was the message from the head of the European Central Bank, who warned countries like Germany that higher wages will lead to more inflation. And the ECB says it won’t hesitate to raise rates.

The comments show that the European bank is more concerned with an inflation of over 3 percent than slack growth. The exact opposite of the U.S. Federal Reserve, which will likely lower interest rates.

But analysts aren’t convinced. Capital Markets VP Rainer Gunterman predicts Europe will fall in line with the U.S. policy.

Rainer Gunterman: We think also European economic growth is about to slow down this year. And we do think that the next move by the ECB will be a rate cut, although this is an issue for very late in the year.

The ECB in the meantime will inject $20 billion into credit markets, the latest response to the subprime crisis.

I’m Megan Williams for Marketplace.

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