ECB increase rates more to come

Yesterday the ECB increased rates by 25 basis points to 3.25 percent. At the same time Jean-Claude Trichet, the ECB president indicated that another quarter point increase would occur before the year was out.

Although the ECB interest rates may be nearing a plateau, the bank is not expected to follow the US Federal Reserve in announcing a "pause". Mr Trichet said Eurozone inflation might come back within the ECB’s target – an annual rate "below but close" to 2 per cent – over a period of 18 to 24 months.
Using code words that have in the past been used two months before a rate rise, Mr Trichet said the ECB would "monitor very closely" future developments. Asked about markets’ expectations of a quarter-point rise in December, Mr Trichet said he would "not say anything that corrected that sentiment". ECB rates remained "low" and policy was "accommodative". On 2007, the ECB would take steps to preserve price stability. That app-eared to leave open the option of pausing at the start of next year when a rise in German VAT is set to push inflation higher but put act as a brake on growth.

Rate increases in the Eurozone will also put added pressure on the UK’s Bank of England at its next meeting in a months time after it chose to hold rates steady at 4.75 percent this tme.

All attention now turns to the US where the Fed meet to discuss US rates. Some are predicting a cut in rates as the economy looks as it could be stalling.