The European Central Bank could start raising key interest rate to combat rising prices. To cope with inflation running at increasingly high rates, the ECB could raise key interest rate on Thursday after it has kept it for more than two years at 1%.
Maintained at the minimum level of 1% after the outbreak of the global crisis, the interest of monetary policy of the European Central Bank (ECB) could be increased this weekend. Economists are concerned by the growing level of inflation, which reached alarming proportions especially in the euro area.
In March, inflation reached 2.6% in the Euro zone countries. One of the tasks of the ECB is to ensure that the annual inflation rate does not exceed 2%. Moreover, the rise in food prices and rising energy prices (caused by global oil prices) are worrying economists who believe that inflation will continue its upward trend.
Keeping inflation under 2%
Since February, the ECB officials’ statements have indicated the likelihood that key interest rate will be increased. However, analysts expect a moderate increase, of up to 0.25 percentage points, according to the euobserver.com portal.
“We are prepared to act decisively and immediately if needed,” said Juergen Stark, member of the ECB Governing Council, quoted by Bloomberg. He stated that, in order to avoid the risk of inflation exceeding the agreed targets, “we must change the direction of the monetary policy, if needed”.
Negative impact on the peripheral countries
The key interest rate increase is not good news for all EU members. Impact felt in the peripheral countries that still face debt crisis and high unemployment rates could be negative. In May 2009, the ECB decided to cut monetary policy interest rates to 1% to stimulate lending and investment.
A similar decision could be taken across the Atlantic Ocean, where the Federal Reserve (central bank of the United States of America) maintains the key interest rate below 1% since 2008. Now, American economists take into account the increase of this interest.
But, while the Americans argue that the decision would be correct, given that the unemployment rate reached in March, 8.8% (the lowest level in over two years), the view of analysts is that the EU’s “two-speed” economy is not yet ready for the interest increase.