As widely expected the European Central Bank today raised its key benchmark rate by 0.25% to 4% on the back of a strengthening Euro zone economy. This marks the eighth rise since December 2005.

ECB Raises European Interest Rates to 4%

Further rises are expected later this year to counter inflationary pressures as economic growth passes ten year highs, and more than three times the rate of the US, which has much higher interest rates of 5.25% although at the moment Euro-zone inflation remains below the ECB target of 2%. Euro zone interest rates last peaked at 4.75% in October 2000, and 4% is seen by economists as being the neutral rate and thus unlikely to impact on the strengthening economy.

The money markets continue to discount a further rise in interest rates this year, with the 3 month Eurbor trading at 4.50%. The next rise is likely occur by September 2007.

By Nadeem Walayat
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