Unlike their US counterparts, European central bankers appear to be vertebrates. European interest rates will remain at a six-year high after Jean-Claude Trichet and the ECB left the benchmark rate unchanged today in a bid to curb rising inflation. Rates will remain at 4% even as consumer confidence collapses in many European economies. The IMF has suggested that growth will decelerate to an anemic 1.4% in the Euro area this year. Inflation, which reached 3.3% in April, however, is the bigger concern and the ECB is determined to hold the line. Bloomberg:
With soaring food and energy prices pushing inflation above 3 per cent in the 15-nation euro region, the ECB is reluctant to follow the U.S. Federal Reserve in cutting interest rates to shore up economic growth… While recent data on economic growth have been disappointing, I doubt that we’ll get any shift to an easing bias” from the ECB, said Jacques Cailloux, chief euro-region economist at Royal Bank of Scotland Plc in London. “They’re in a wait-and-see mode, looking for news that inflation will decelerate further.”
The move was widly expected and will probably not have any significant effect on the dollar. As the European economy continues to weaken, dollar bulls are anticipating a gradual shift to an easing atmosphere. From the look of things, though, this won’t come soon.