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Last Updated: Wednesday, 6 June 2007, 13:17 GMT 14:17 UK
ECB raises eurozone rates to 4%
Jean-Claude Trichet
The ECB has signalled there may be more rate rises to come
The European Central Bank (ECB) has raised interest rates for the eurozone to 4% from 3.75%.

The increase takes rates in the area to their highest level for six years and means they have doubled in 18 months.

The rise had been expected following a series of inflationary warnings from ECB members in recent weeks.

At his news conference, ECB president Jean-Claude Trichet used a form of words to suggest there may be more rate rises this year, but not next month.

Confidence high

The eurozone economies, especially Germany, have been growing strongly in 2007.

Unemployment in the eurozone is at its lowest level since the launch of the euro while confidence is high and business activity is expanding.

There are more rate hikes in the pipeline
Audrey Childe-Freeman, CIBC World Markets

The ECB has revised upwards its forecast for inflation in the eurozone this year to 2% from 1.8% but it has not changed its forecast of 2% for next year.

Mr Trichet said that eurozone monetary policy is "still on the accommodative side", which analysts interpreted to mean that he was prepared to allow this growth to continue.

'Monitor closely'

If Mr Trichet had dropped the word "accommodative" from the statement, it would have suggested that rates were approaching their peak.

And the ECB president did not use the term "strong vigilance", which he used in May as a signal that rates would rise this month.

He said that the ECB's governing council would "monitor closely all developments".

In the past, saying that he was watching inflation "very closely" meant that a rise was a few months away.

"Trichet is in close monitoring mode, liquidity is ample and more importantly he says monetary conditions remain accommodative - that confirms that there are more rate hikes in the pipeline," said Audrey Childe-Freeman, an economist at CIBC World Markets.

Marc Stocker from BusinessEurope, which represents 20 million European companies, said: "We don't have any strong reservations with today's decision, which was justified by prevailing economic conditions."

The ECB's benchmark rate - the rate that has been raised from 3.75% to 4% - is the minimum bid rate for its regular refinancing operations.

Its two other key rates have gone up by the same amount. The deposit rate is now 3% and the marginal lending rate is 5%.

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24 May 07 |  Business
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12 Apr 07 |  Business
More eurozone rate rises 'likely'
28 Feb 07 |  Business
Eurozone growth forecast raised
16 Feb 07 |  Business

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