In a move that was expected by most analysts, the European Central Bank raised its main refinancing rate on Thursday by a quarter point, to 2.5 percent. It was only the second time rates have been raised in the eurozone in five years. Interest rates are expected to rise by a further quarter or half point to 2.75 percent or 3 percent by the end of the year.

Today’s hike and those predicted to come are driven by improving economic data from the eurozone and an expected pressure toward inflation. The headline inflation rate was 2.4 percent in the year ending in January, above the ECB’s target of around 2 percent. The core interest rate, which excludes food and energy prices, was at 1.2 percent.

Another pressure to raise interest rates comes from the concern by some members of the ECB’s governing council that if interest rates continue to remain low, borrowing by households and businesses will continue to grow. New data shows that lending to individuals was up at an annual rate of 9.4 percent in the eurozone in January, the fastest growth since 2000. Business lending was also up. Property prices are also up, by 7.7 in the first half of last year, leading the ECB’s president to argue that a tight monetary policy might be necessary to control eurozone property prices.

Tags: Interest Rates News, ECB: European Central Bank News, European Economy News //