Tags: ECB | Officials | April | Rate | Increase

ECB Officials Signal They’re on Track for April Rate Increase

Monday, 21 Mar 2011 02:23 PM

The European Central Bank is ready to act quickly to guard against inflation, ECB policymakers said Monday, signaling they intend to raise interest rates in April despite the impact of Japan's disasters.

ECB President Jean-Claude Trichet said he had nothing to add on the bank's monetary policy stance to his comments at its last policy meeting on March 3, when he shocked financial markets by announcing that an April rate rise was possible.

"Inflation in the euro area is on the rise," he told the European parliament's Economic and Monetary Affairs Committee. "In the view of the Governing Council, as expressed on 3rd of March, risks to the price outlook are on the upside."

Trichet led a chorus of ECB policymakers in signaling that the bank is still poised to raise interest rates from a record low of 1.0 percent at its next policy meeting on April 7.

Some were more direct than Trichet.

Mario Draghi, who heads the Bank of Italy and is tipped as a possible successor to Trichet, said the ECB "remains prepared to act in a firm and timely way" to ensure inflationary risks do not materialize.

Trichet's term as ECB chief expires in October.

In Austria, Executive Board member Gertrude Tumpel-Gugerell said the ECB was exercising "strong vigilance" on inflationary pressures -- repeating the phrase Trichet used on March 3 and which in the past signaled a rate rise was only a month away.

Since the ECB's early March policy meeting, Japan's earthquake, tsunami and nuclear disasters have thrown fresh doubts over the global economic recovery, leading financial markets to question whether the ECB will hike rates in April.


Analysts said the comments by Trichet reinforced expectations of a rate hike next month, despite Japan.

"Trichet suggested that the ECB still plans to hike the refi rate in April despite the recent increase in uncertainty," Barclays Capital's Giuseppe Marafino and Laurent Fransolet said in a note.

Yves Mersch, another ECB Council member, also used tough language ahead of April's policy meeting.

"The Governing Council remains prepared to act decisively and timely to ensure that upside risks to price stability do not materialize over the medium term," he said.

Mersch said inflationary risks were clearly on the upside, an additional hint that the 17-country bloc's central bank is still on course to raise interest rates next month.

"We have indicated very high vigilance for the period that will take us to the decision of April ... and we will take the appropriate decisions in order to guarantee price stability in the medium term," Mersch added in his native Luxembourg.

Draghi recalled that the ECB's main refinancing rate had remained at the "exceptionally low" level of 1 percent since May 2009 and real short-term rates had remained negative by a wide margin even after the start of the cyclical economic recovery.

"We are following the tragic events in Japan with the closest and most heartfelt attention," Draghi said, but he gave no indication the ECB was considering holding off a rate hike.

Key euro-priced bank-to-bank lending rates rose on Monday as the ECB showed no sign of backing away from a hike in April.

© 2015 Thomson/Reuters. All rights reserved.

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