While the Bank of England’s Monetary Policy committee opted for the wait and see approach, the European Central Bank has chosen to take action to head off inflation and has raised the Eurozone rates for its 17 members.
After raising the rate in April by 0.25% the governing council has inched the rate up another 0.25% today to 1.5%.
This is despite the worsening debt position that Greece is experiencing.
According to their press release the ECB’s decision was taken in order to keep ‘ … inflation expectations in the euro area firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term’.
Currently the Eurozone inflation rate is 2.7%, which is above that 2% target.
But there may well be repercussions to the Eurozone states such as Greece and Portugal who are deeply indebted. But the ECB gas to set rates for the whole zone and the ECB president Jean-Claude Trichet said that ‘ … the entire continent would benefit from maintaining price stability and confidence’.
PwC economist Esmond Birnie, said in a press release ‘Higher ECB rates are tending to keep the euro relatively strong vs. the pound, despite the debt problems in Greece and elsewhere. Good news for UK exporters but not such good news for British people soon to set off on their summer holidays to popular euro zone destinations like France, Spain, Portugal, Greece and Italy.’
This proactive stance is a far cry from the approach taken by the UK’s MPC who today decided to keep interest rates at their historically low level of 0.5% for another month.
Today also sees Chinese interest rates go up to 6.56% as the country tries to combat its now 5.5% consumer price inflation rate, with food prices rising faster than other prices.