ECB chief hints at rate-rise retreat

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European Central Bank President Jean-Claude Trichet has said that the bank is “not pre-committed” to raising interest rates, leading to speculation that an expected September rate hike may be off the cards.

Speaking at an economic congress in Budapest on 27 August, the ECB president said that the bank’s governing council would reassess the need to raise its lending rate in order to stem inflation at a meeting on 6 September. 

A status quo would mark a change in the ECB’s policy over the past 18 months, which brought interest rates up to a five-year high of 4% in June, after eight consecutive rises aimed at fending off inflation in times of healthy economic growth across Europe. 

But the recent US subprime mortgage crisis, which forced the ECB to inject more than €200 billion into European money markets (EURACTIV 22/08/07), may also lead the bank to reconsider a planned ninth rise to 4.25% in September. 

“What I said on 2 August was before market turbulences,” said Trichet, referring to comments he had made about the need to monitor inflation with “strong vigilance”. 

Whether he goes ahead with the rise or not will depend on whether he succeeds in calming markets and avoiding a downturn in economic growth – something that he remained positive about, pointing to “present favourable growth developments” in Europe. 

In a reaction to the crisis, the European mortgage sector advised the Commission not to support housing credit schemes similar to those in the US when it adopts a White Paper on mortgage credit later this year. “We understand the concept of consumer protection in a way to protect citizens from these credit practices and not to support the expansion of these forms of housing credits within Europe,” said Andreas J. Zehnder, managing director of the European Federation of Building Societies. 

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