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ECB Set to Raise Rates This Week
By MATT MOORE AP Business Writer � 2007 The Associated Press
TOOLS Email Get section feed Print Subscribe NOW Comments Recommend FRANKFURT, Germany � The cost of borrowing in the 13 nations that use the euro is set to increase when the European Central Bank meets this week, with analysts and markets all but certain the bank will lift its key interest rate to at least 4 percent.
With prospects for economic growth in the euro zone looking up, the question is whether the ECB will increase rates again this year.
Some analysts believe the ECB will tighten monetary policy as it faces the prospect of inflation rising above its comfort zone of at or near 2 percent.
Thorsten Weinelt and Marco Annuziata at UniCredit said the bank could raise rates to 4.5 percent by the end of the year, making everything from mortgages to auto loans more expensive for the more than 317 million people in the euro zone, which accounts for more than 15 percent of the world's growth.
"The ECB will remain firmly in the hawkish camp," Weinelt and Annuziata said in a research note.
Year-on-year inflation in the euro zone was 1.9 percent in May _ unchanged from the previous two months, and around the ECB's guidelines of just under 2 percent.
That suggests that, beyond Wednesday's expected quarter-point increase from 3.75 percent, the ECB is unlikely to rush into further increases.
Speaking Monday in Brussels, ECB President Jean-Claude Trichet said that strong economic growth in the euro zone shouldn't lead to complacency _ but dropped no hints about what he may say after the bank's decision this week.
"Europe still has some way to go, if it wants to cope with globalization and meet the challenges of rapid technological changes and aging population," he said. "This is true at the level of Europe as a whole as well as at the level of each particular economy."
Business and consumer confidence have been rising in the euro zone, while growth _ at 3 percent in the first quarter _ is largely keeping pace with last year's levels and unemployment is falling.
Those figures, analysts said, cemented Trichet's signal of a rate increase after last month's meeting, when he warned that "strong vigilance" necessary.
The phrase has long functioned as a code for markets that an increase _ typically a quarter of a percent _ was in the offing, and has preceded the last seven increases since December 2005.