ECB firm against interest rate pressure

Stephen Beard Jul 3, 2008
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ECB firm against interest rate pressure

Stephen Beard Jul 3, 2008
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Renita Jablonski: Oil is near $146 a barrel this morning.
About a month ago, Morgan Stanley, one of Wall Street’s biggest energy traders, predicted crude could reach $150 a barrel by July 4. So here were are — some analysts think that barrier could be breached this afternoon.

Let’s take a look at the biggest drivers right now — we heard about a larger than expected drop in U.S. stockpiles this week. There’s also the threat of conflict with Iran. And the European Central Bank is expected to raise interest rates today. A lot of people are looking at the ECB as a bit of a bully, as Stephen Beard reports.


Stephen Beard: The ECB has come under intense pressure not to raise rates. The U.S. Treasury argued a rate hike would draw more hot money into the euro, push down the dollar and send the price of oil even higher.

European politicians have weighed in as well. President Sarkozy of France and the finance ministers of Germany, Italy and Spain have called for the ECB to hold off.

But the Bank seems intent on raising rates to curb inflation. Quite right, says Geoffrey Wood of the Cass Business School:

Geoffrey Wood: Very, very important for them to keep inflation expectations anchored. Because if they lose that anchor — as we saw in the last time there was a big oil price shock — we could get high inflation followed by quite deep recession.

He says it’s vital to stop wages chasing prices higher, although he accepts that with some eurozone economies slowing sharply, a rate hike now will cause some pain.

In London, this is Stephen Beard for Marketplace.

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