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ECB to raise key interest rate to 4.00% today

The European Central Bank is expected to raise its key interest rate to 4.00% at the meeting of its Governing Council in Frankfurt today Wednesday.

At the meeting of the Governing Council in Dublin on May 10th, ECB President Jean-Claude Trichet said that „strong vigilance” on inflation risks, was warranted, which was a coded signal that the key rate would be raised from 3.75% at the next rate review meeting in June. The eight rise tomorrow in the current monetary tightening phase that began in December 2005, will result in a 100% rise in the rate from 2% - a level that had remained steady since mid-2003.

The Eurozone recovery has been robust
Last Friday, Eurozone unemployment was reported to have fallen to 7.1% in April - the lowest since records began in 1993 and today a survey of the private sector economy confirmed the strength of the current economic performance. Wednesday's meeting of the Governing Council is also important as the normalization of monetary policy after a long period of very low rates, is expected to be near.

The 4% is sometimes claimed to be a neutral rate and the ECB interest rate had peaked at 4.25% in 2001. Last week Bundesbank President Axel Weber said in an interview with the ECB will stop using „codewords” to signal its rate intentions. Market analysts expect a further hike in the key interest rate to 4.25% in September. (