ECB raises key interest rate as expected

Posted on Apr 8, 2011 in AllEconomic News
The European Central Bank (ECB) raised its key interest rate to 1.25 percent Thursday as expected.

To counter the economic crisis, the ECB has kept its key interest rate at 1 percent, a record low, since May 2009.

The market widely expected the hike because of recent high inflation due to rapidly rising oil prices and the world economic recovery.

In March, inflation in euro area reached 2.6 percent, the European Union’s statistics office said last week, higher than the ECB’s medium goal of below, or close to, 2 percent.

The rate increase will add burdens to those eurozone countries which are heavily in debt; however, markets and economists still believe the negative effects are quite small.

“I expect no huge negative effects. A rise in the interest rate of 100 base points (25 are expected) will lead to a decline in GDP growth rate in the euro area of 0.2 percentage points, which appears to be quite low,” Prof. Christian Dreger, head of the Macro Analysis and Forecasting department in German Institute for Economic Research in Berlin (DIW Berlin) told Xinhua in an email Wednesday.

Besides the key rate, the interest rate on the marginal lending facility and on the deposit facility were both increased 25 basis points, to 2 percent and 0.5 percent respectively, the ECB said.

ECB president Jean-Claude Trichet will explain the decision later at 2:30 pm (1230 GMT) in a press conference, while the new monetary decision will come into effect on April 13.

via ECB raises key interest rate as expected – People’s Daily Online.