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Euro mortgage rate increases - 16 March 2007


The European Central Bank has increased its key interest rate to 3.75%, reports the BBC...

At its monthly meeting at the end of last week, the Governing Council of the European Central Bank (ECB) decided to increase its key interest rate from 3.5% to 3.75%, amid fears of inflation.

The hike, which takes the eurozone interest rate to its highest level in five-and-a-half years, was widely predicted by many observers.

Inflation worries

With unemployment declining in Germany and France, growing business confidence across the 13-member-state eurozone, and Europe's key economies performing strongly, some analysts believe rates could hit 4% before the end of the year.

Global Insight's chief UK and European economist Howard Archer told the BBC, "The ECB is clearly retaining a tightening bias in its monetary policy stance following the rate hike. Today's developments have reinforced our belief that interest rates will rise to 4.00% around mid-year."

Last month ECB president Jean-Claude Trichet warned "strong vigilance" was needed in the fight against inflation.

UK economy over-heating too

The ECB's decision came shortly after the Bank of England announced it was keeping UK interest rates on hold at 5.25%.

However, at 2.6%, UK inflation is currently well above the Bank's target of 2%. This has prompted many analysts to forecast another UK rate rise in the next few months.

 

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