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ECB signals eurozone interest rates are set to rise | ECB signals eurozone interest rates are set to rise |
(40 minutes later) | |
The European Central Bank (ECB) has signalled that it will raise interest rates next month, from 1.25%. | The European Central Bank (ECB) has signalled that it will raise interest rates next month, from 1.25%. |
Earlier on Thursday, the ECB kept rates unchanged for the second month in a row, after increasing them in April for the first time in almost two years. | Earlier on Thursday, the ECB kept rates unchanged for the second month in a row, after increasing them in April for the first time in almost two years. |
The central bank wants to raise rates again in July to curb inflation in some of the eurozone's 17 member states. | The central bank wants to raise rates again in July to curb inflation in some of the eurozone's 17 member states. |
But it has to balance that against the need to leave rates low to boost growth in nations such as Greece and Portugal. | But it has to balance that against the need to leave rates low to boost growth in nations such as Greece and Portugal. |
In his press conference, ECB president Jean-Claude Trichet pledged to exert "strong vigilance" on inflation, a signal to the markets that rates will be raised at the next meeting. | In his press conference, ECB president Jean-Claude Trichet pledged to exert "strong vigilance" on inflation, a signal to the markets that rates will be raised at the next meeting. |
"I would say... that it means that we are in a mode where there might be in the next meeting an increase of rates," he said. "But we are never pre-committed," he added. | "I would say... that it means that we are in a mode where there might be in the next meeting an increase of rates," he said. "But we are never pre-committed," he added. |
However, Mr Trichet added that since the ECB's May meeting there has been "continued upward pressure on overall inflation mainly owing to commodity and energy prices". | However, Mr Trichet added that since the ECB's May meeting there has been "continued upward pressure on overall inflation mainly owing to commodity and energy prices". |
Inflation in the eurozone was 2.7% in May. The ECB increased its forecast on inflation for 2011 to 2.6% from its previous prediction of 2.3%. | Inflation in the eurozone was 2.7% in May. The ECB increased its forecast on inflation for 2011 to 2.6% from its previous prediction of 2.3%. |
The bank also increased its economic growth forecast for 2011 to 1.9% from 1.7%. | |
"The most recent data confirm the positive underlying momentum of economic activity in the euro area," Mr Trichet said. | |
The euro fell 0.6% to $1.44880 against the US dollar. | |
The eurozone economy remains fragile with some countries grappling with high unemployment, huge debts and government spending cuts. | |
'Last' move? | 'Last' move? |
In May, the European Union approved a 78bn euro (£68bn; $110bn) bail-out for Portugal, which comes after the Irish Republic and Greece also had to be bailed out. | In May, the European Union approved a 78bn euro (£68bn; $110bn) bail-out for Portugal, which comes after the Irish Republic and Greece also had to be bailed out. |
"If we are right in expecting growth to slow further in the coming months, both in the periphery and the core, then a July move may prove to be the last," said Jonathan Loynes, chief European economist at Capital Economics. | "If we are right in expecting growth to slow further in the coming months, both in the periphery and the core, then a July move may prove to be the last," said Jonathan Loynes, chief European economist at Capital Economics. |
Markets have remained weak over fears that Greece's debts will still have to be restructured, a measure that the central bank opposes. | Markets have remained weak over fears that Greece's debts will still have to be restructured, a measure that the central bank opposes. |
Forcing Greek investors to take losses on their debt would be considered a credit default by ratings agencies, meaning the ECB could not accept Greek bonds as collateral. | Forcing Greek investors to take losses on their debt would be considered a credit default by ratings agencies, meaning the ECB could not accept Greek bonds as collateral. |
Mr Trichet reiterated that he opposed any restructuring of Greek debt that were not purely voluntary and created a "credit event". | |
"We are not in favour of restructuring," Mr Trichet said. | |
"We exclude all concepts which would not be purely voluntary, without any elements of compulsion." | |
New president | |
The ECB's governing council also approved the leading candidate to succeed Mr Trichet as head of the ECB. | |
The central bank said it had "no objections" to the candidacy of Mario Draghi, the head of the Bank of Italy. | |
Mr Draghi is a "person of recognised standing and professional experience in monetary or banking matters," the governing council said in a statement. | |
He is the only declared candidate to succeed Mr Trichet, whose term ends in October. |