Top > Business > 2006 > December > 2006-12-14

European Central Bank Raises Interest Rate

The European Central Bank raised interest rates in the 12 countries of the Euro block by 0.25% to 3.5% Thursday. This is the 6 interest rate increase in the past year and the highest since November 2001. Last month the European Central Bank left the interest rates as they were but many anticipated that this month the bank would raise the rates by 0.25%. The Euro is currently traded at $1.3294 US and rising. The euro recently hit a series of 20-month highs vs. the dollar with expectations that the gap between U.S. and European interest rates would continue to narrow.

Many European analysts believe the interest rates will reach 3.75% by the beginning of 2007. President Jean-Claude Trichet hinted last month that he would continue raising interest rates next year as well. The central bank experienced a growth rate of 1.6% to 2.6% in the 12 nations of the Euro block during 2007 with inflation rates of 1.9% to 2.8%

On the other hand the British Central Bank decided to leave its interest rate at the same 5% interest that was decided during November. Analysts claim that the country`s interest rates will reach 5.25% next year. The Dollar is losing ground as the Federal Reserve decided not to raise interest rates in its last three meetings after a long two years of penny pinching and credit tightening. Raising interest rates is a tool used by central banks in order to battle inflation and strengthening the local currency by making it more attractive to foreign and local investors.