Oil prices prompt euro interest rate rise

The European central bank has raised eurozone interest rates by a quarter of a per cent amid continued concerns about oil-fuelled price inflation.

ECB president Jean-Claude Trichet said that eurozone interest rates would rise to 2.75 per cent in order to counter expected price rises caused by the high cost of oil.

The rate rise had been widely expected – Trichet all but confirmed it two months ago – but some analysts had suggested the ECB could be more aggressive and lift rates to 3 per cent.

The ECB and eurozone governments disagree over the speed of economic recovery, with some members of the 12-country group – including current EU president Austria – cautioning that higher interest rates could slow growth.

But Trichet said that Eurostat data showed GDP growth of 0.6 per cent in the euro area during the first three months of 2006, showing that “economic growth is becoming more sustained”.

Even after the increase, he said, “ECB interest rates are still low by historical standards”.

And he hinted that further rate rises could be necessary to keep inflation under control. “In the months to come and in 2007, inflation rates are likely to remain above 2 per cent, the precise levels depending on future energy price developments,” he said.

Business leaders have also warned that further rate rises will damage economic recovery.

“Any interest rate increase should be assessed against its consequences on purchasing power, household consumption, competitiveness and on employment,” said Peter Bernert, president of EuroCommerce, which represents Europe’s wholesalers and retailers.

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