European Central Bank rates freeze likely as inflation stays high at a record of 3.2% in February
The European inflation remained at a record high of 3.2 % in the month of February. This will further enhance possibilities of the ECB’s rate of interest to be left tightly on hold at the council meeting on Thursday the 7th of March. The ECB overturned its representation as a sluggish business, through its quick response in the previous year due to the warning of financial markets grabbing up and leading an example in forcing emergency liquidity. However, the inflation information on Monday pressed on higher due to fuel and food prices which mean an extra watchful nature is possibly to overcome on the 7th of March.
ECB president Jean-Claude Trichet argued that the main task of the bank is to fight inflation, the task which is undoubtedly different from its responsibility to ensure the systematic implementation of the financial markets. The primary interest rate of ECB is unchanged at 4 % since the month of June last year despite clear signs which show European economic development has severe cuts and slowed down in borrowing incomes by the Federal reserve of United States. Trichet was very much worried about the interest of US in the strong dollar; however the main concern for ECB is about the flow in inflation. The prices for food and fuel seem to be the main concern for the bank.
As the European Central Bank expects to revise its predictions for the development in the present year significantly, it also predicts to revise the inflation to be upwards. Even in the coming year it could show an enhanced threat where the Eurozone inflation could be above the target which is below the normal 2 %. However, few of them are worried that the bank is taking the economic threat too lightly. Marco Annunziata said he feared that the ECB would fall in a trap while trying to avoid the considerable slowdown of growth. Development is slow due to higher inflation in the commodity prices whereas contraction in the credit is not yet been seen in the statistics added Annunziata.
Even as the improvement in the Eurozone was at a record high against the US dollar and also on the basis of trade-weighted controlling the development, it appears that this is even viewed as useful in dealing with the price demands. The vice president of ECB Lucas Papademos disagreed that the impact is not possibly to be significant on the economic activity of the financial market chaos. According to the ECB statistics the borrowing business in the Eurozone raised at the record high which approached 15 % in the month of January.
According to the indices of the purchasing manager, the main concern was in the manufacturing unit of Spain were its production fell for the first time in more than five years in the month of February. However, Netherlands and Germany seemed to be enduring the financial blizzard better. On the other hand ECB has changed its attitude on the possible course of the interest rates. Jean-Claude Trichet normally stressed on the curiously high altitude of insecurity that emerged to open the doors for these cuts.
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