The European Central Bank (ECB) kept its key interest rate unchanged at 1.0% but hinted that an increase in rates at the next meeting might be forthcoming.
In his press conference, ECB President Jean-Claude Trichet said the current stance in monetary policy is "very accommodative" and has been lending considerable support to economic activity.
But he warned, "Strong vigilance is warranted with a view to containing upside risks to price stability."
Trichet would not commit to higher interest rates at the April meeting, which is not a surprise, but he did say such a move is possible, as he appears to be laying the groundwork for a shift in monetary policy.
Unlike the Fed, which has a dual mandate of maintaining the highest level of employment that is consistent with price stability, the ECB's primary objective is price stability, with a goal of keeping the headline CPI “below, but close to, 2% over the medium term.”
The Fed, unlike the ECB, focuses mainly on core inflation, which excludes food and energy, but like the Fed, it doesn’t want to rock financial markets with surprise rate hikes and does telegraph its intentions before acting.
According to the latest data, inflation in February rose to 2.4%, according to Eurostat’s flash estimate, up from 2.3% in January.
(Source: ECB/Eurostat) Despite its main aim of keeping inflation under wraps, the ECB does not operate in a vacuum and is aware of the problems that southern Europe is facing. But it is a much more hawkish group than the Federal Reserve and appears ready to act to prevent rising prices from getting entrenched in the eurozone. Expect a new round of criticism it the central bank bumps up rates, especially given the problems in parts of Europe.
Not surprisingly, the euro is reacting favorably versus the dollar.
0 comments:
Post a Comment