Despite a global economic slowdown, today the European Central Bank is set to raise the interest rate by 0.25%, from 1.25% to 1.5%, at its policy setting meeting at 12:45 P.M., GMT. Most economists agree this move should not have a dramatic effect on the global financial markets as long as the ECB does not intervene again – at least until the end of 2011.
European Central Bank President Jean-Claude Trichet announced his intention to raise the interest rate last month citing rising inflation pressures in the euro zone.
The euro zone inflation rate stabilized at 2.7% in June after reaching a peak of 2.8% in April. Inflation is expected to remain well above 2% – a rate which the ECB has defined as the upper limit of the threshold for tolerable inflation – until the end of the first quarter of 2012, according to Natixis, a branch of the second-largest investment bank in France.
Gilles Moec, an economist at Deutsche Bank noted that “the underlying inflation (excluding food and energy) rose to 1.8% in April and has remained quite high until now.”
According to Oddo Securities, a French research firm, the ECB’s slight tightening of monetary policy should be “Jean-Claude Trichet’s last rates raise,” before his scheduled departure from the position of ECB president in late October.