2ND ECB hints at March rate rise while Britain hikes


dpa German Press Agency
Published: Thursday January 11, 2007

Frankfurt- The European Central Bank held interest rates
steady Thursday but with ECB chief Jean-Claude Trichet opening the
door to a March hike in borrowing costs in the 13-member currency
bloc.
The decision by the bank's 19-head governing council to leave its
benchmark rate unchanged at 3.5 per cent at its first meeting for the
year was in line with analysts' forecasts.

But marking out the difference in approach between the Bank of
England and the ECB, the London monetary authorities delivered a
surprise 25-basis-points hike Thursday aimed at heading off resurgent
inflationary pressures in Britain.

This brought the Bank of England's repurchase rate to a five-year
high of 5.25 percent. Analysts had expected the British monetary
authorities to keep rates on hold Thursday.

Unlike other central banks around the world, the somewhat cautious
Frankfurt-based ECB prides itself on its predictability.

"We try to be reasonably predictable," Trichet said at his regular
press conference Thursday following the ECB's governing council
meeting. "We are happy to be predictable," he said.

Indeed, pointing to an increase in eurozone rates, Trichet told
reporters that projections for a move in March "don't seem to me
aberrant on the present level of my information."

Speaking at the press conference, Trichet also said that with
regard to prices "very close monitoring of all developments is of the
essence."

Most economists expect the ECB to raise rates again in March when
it has a more comprehensive picture of the eurozone economy during
the opening months of 2007.

Despite six rate hikes in about 12 months, Trichet described
interest rates in the eurozone as accommodative, and warned about
rapid credit growth and fast-moving housing markets in parts of the
currency bloc.

"Our monetary policy continues to be accommodative, with the key
ECB interest rates remaining at low levels, money and credit growth
very strong, and liquidity in the euro area ample by all plausible
measures," Trichet said.

Thursday's ECB meeting also officially marked the increase in the
eurozone's membership number to 13 after the tiny former Yugoslav
republic of Slovenia adopted the euro as its currency on January 1.

This also expanded the bank's governing council from 18 to 19 with
the inclusion on the ECB's rate-setting body of the Slovenian central
bank governor Mitja Gaspari.

The ECB has raised borrowing costs by a total of 150 basis points
since December 2005, increasing its benchmark refinancing rate by 25
basis points to 3.5 per cent at its last meeting in December 2006.

Some analysts are expecting the ECB to raise rates to more than
4.0 per cent by the end of the year.

Trichet also joined many private economists in expressing optimism
that the eurozone economy will be able to weather the threats posed
to growth by a slowing global economy and this month's tax hikes in
the currency bloc.

In particular, this includes Germany's hefty three percentage
points value-added tax increase.

The ECB chief told reporters that growth in the eurozone should
remain robust.

As a sign of the economic momentum built up in 2005, official data
released as the ECB's governing council members gathered in Frankfurt
Thursday, showed the German economy growing at 2.5 per cent in 2006,
its fastest rate in six years.

But at the same time, an unusually mild northern hemisphere winter
has added to the downward pressure on oil prices, which have pulled
back from a record high of 78.40 dollars a barrel in July.

Oil prices dropped to their lowest point since June 2005 of 53.24
dollars ahead of Thursday's ECB's meeting.

Moreover, figures released last week showed eurozone inflation
ending 2006 at 1.9 per cent, consequently within the ECB's two-per
cent target as the retreat in oil prices helped to ease the
inflationary pressures in the currency bloc.

But with a new wage increase campaign taking shape in Germany, the
eurozone's biggest economy, Trichet warned about the upside risks to
inflation and the threat to consumer prices posed by renewed oil
price pressures.

© 2006 - dpa German Press Agency