ECB set to raise interest rates despite debt crisis
The eurozone debt crisis will not stop the European Central Bank (ECB) raising interest rates for a second time this year on Thursday as it focuses on the "day job" of fighting inflation, economists predicted.
The central bank that sets monetary policy for the 17-country eurozone is universally expected to lift its benchmark rate by a quarter point to 1.5% at its meeting in Frankfurt, led by president Jean-Claude Trichet. City analysts reckon this could be followed by another rate rise towards the end of the year.
The ECB's willingness to battle inflation is in stark contrast to the stance adopted by its counterpart in London. The majority on the Bank of England's monetary policy committee, led by governor Sir Mervyn King, have chosen to ignore high inflation and argued for some time that interest rates need to stay at a record low of 0.5% to support the faltering economy. The Bank will announce its decision at noon while the ECB's decision is due 45 minutes later, followed by a press conference hosted by Trichet.
After supporting banks with unlimited cash through the crisis, the ECB has moved to normalise European money markets. Trichet's patience with European leaders is starting to run thin as he urges them to reduce their budget deficits.
"Trichet has drawn a line in the sand on Greece and he's now focusing on the day job," Jacques Cailloux, chief European economist at Royal Bank of Scotland in London told Bloomberg News. "The ECB has done more than governments have to prop up the euro area and it really is losing patience with political leaders. It's up to them to fix the problem."