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Ecb To Raise Rates Five Times Within The Year

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Interest rates could hit 3.25pc by end of year

Friday March 3rd 2006

ECB statement says that inflation outlook is worsening

Conor Sweeney and Brendan Keenan

INTEREST rates may rise faster than had been expected this year. This follows surprisingly tough talking from European Central Bank President Jean-Claude Trichet, in the wake of yesterday's quarter point hike to 2.5pc.

Market interest rates hit their highest level in almost a year, after Mr Trichet revealed that the ECB Governing Council had considered a half point rise yesterday. Many analysts now believe rates could hit 3.25pc by end year, in the light of yesterday's anti-inflation rhetoric.

"Today's decision is reflecting our current assessment that we will monitor very closely all developments," he said.

"It reflects upside risks to price stability. Interest rates still remain at very low levels, and our monetary policy remains accommodative."

The ECB statement said the inflation outlook is worsening while economic growth is steadily improving in the eurozone. Its economists increased their forecast for growth to a mid-range of 2.2pc.

Mr Trichet pointedly refused to endorse the current level of market rates pointing to 3pc by end-year, as he had done last month.

Next rise

Instead, he said the Governing Council had an open mind on when to move next, just like it had in December when it began its first rate-tightening cycle in five years.

Asked if that meant the next rise might also come in three months' time in June, Mr Trichet said: "There are no rules such as increases every month or increases every three months.

"We increase rates if necessary, when necessary and when we judge it is appropriate."

"We still think ECB rates will end 2006 at 3pc," said Austin Hughes, economist at IIB Bank. But markets may anticipate faster increases, stretching to 4pc in 2007."

"If the data for the first quarter supports good survey results, we could see a June rate hike," said Niall Dunne, Ulster Bank Financial Markets Strategist.

Northern Rock Bank immediately announced a 0.2pc increase in its savings rates, while the accountants' body ACCA pointed out the changes were good for pensions.

"With strong stock market growth and increasing annuity rates, people with a PRSA or the more common types of company pension could end up gaining far more in their pension than they lose on their mortgage repayments," said ACCA president Gerard Loughnane.

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A few years ago it was a familiar cry of the EA / Mortgage Broker fraternity that UK interest rates were going match European levels (then 2%). In a perverse round about kind of way they may get what they wished for! ;)

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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