| The ECB does not intend to change financial policy until May The European Central Bank (ECB) at tomorrow's Governing Council meeting will apparently leave the refinancing rate at the same level - 2.5%. All forty economists surveyed by Bloomberg believe that there will be no rate change at the next meeting. However, many council members believe that Europe is ready for a rate increase. As Market News reports, citing a source in the ECB, “the majority of members of the ECB’s governing council want to raise the rate in May, as medium- and long-term forecasts indicate an acceleration in inflation growth above 2%.” In other words, we should expect that on May 4 the rate will be raised by 0.25 percentage points. The foreign exchange market reacted to economists' comments: the euro yesterday rose to a two-week high of $1.2184.
Last Thursday, ECB head Jean-Claude Trichet noted that the base rate was still at a “historically low” level. A day earlier, a similar opinion was expressed by the head of the Bank of Luxembourg and member of the ECB board Yves Mersch. In an interview with the International Herald Tribune, he said the European Central Bank needed to “act on faith” if it was to ensure price stability. “Perhaps Mr. Trichet will set the course forward, towards promotion. There are good reasons for this,” says Neville Hill, an economist at Credit Suisse First Boston in London.
Good macroeconomic statistics give the ECB every reason to raise rates, analysts say. For example, Germany, the leading economy in the eurozone, saw its business confidence index jump to a 15-year high in March, beating the ECB's highest reading in 14 months.
Chief economist of the Frankfurt company Julius Baer Holding AG David Kohl believes that a delay in raising rates could have a negative impact on the economy. “It remains unclear how fundamental the eurozone economic recovery will be. It is possible that the ECB will provoke a negative shift in the economy if it confines itself to only hints at raising rates,” he said.
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Rising interest rates in Japan could harm the economy, Finance Minister Sadakazu Tanigaki said. "When the economy remains slightly deflationary, any sharp rise in interest rates will have a negative impact on the economy," he said. "In any case, we need to carefully monitor their movements." The yield on benchmark 10-year bonds rose sharply on Monday by eight basis points to 1.845% per annum, reaching its highest level since August 2004. Since the beginning of March, bond yields have risen by 20 basis points. As you know, in March the Bank of Japan decided to abandon its ultra-liberal monetary policy after many years of interest rates remaining at almost zero. Denis UVAROV |
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