ECB seen flagging July interest rate rise
The European Central Bank is likely to flag a July interest rate rise today, but has given little away about the shape of a new bailout package for Greece.
The ECB is expected to use higher staff inflation forecasts, to be published during today’s post-policy meeting news conference, as justification for higher interest rates to come – probably starting with a rise to 1.5 per cent next month.
The ECB raised its main refinancing rate to 1.25 per cent from one per cent in April, its first tightening in two years.
ECB President Jean-Claude Trichet is expected to say the bank will exercise “strong vigilance” over price pressures, using a phrase that in the past signalled a hike was a month away. He used that code in March to flag April’s rate rise.
Firming cost pressures – eurozone producer prices rose by more than expected in April – mean a rate rise cannot be ruled out this month though the ECB’s decision not to signal a hike makes it very unlikely.
“I don’t think the door to a hike in June is completely closed but given that the ECB has historically pre-announced a rate hike, a hike in June would be a surprise and would assume a change in communication strategy,” said Nick Matthews at RBS.
“That’s quite unlikely given that in current market conditions the ECB would be unlikely to want to add to volatility,” he added.
ECB staff projections are likely to be raised, both for inflation and economic growth. In the last set of forecasts, published in March, the ECB forecast inflation of around 2.3 per cent this year and 1.7 per cent next.