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December 7, 2006    

ECB raises interest rates, while BofE holds steady

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by Elaine Frei

The European Central Bank raised interest rates on Thursday for the sixth time since last December. The rate hike, which was expected, sent Eurozone internet rates up by 25 basis points to 3.5 percent.

In the remarks which came along with the announcement, ECB president Jean-Claude Trichet said that inflation remains a danger. Mr Trichet’s comments came even though inflation remained within the ECB’s 2 percent target in November, at 1.8 percent.

In the UK, meanwhile, the Bank of England also fulfilled expectations by deciding to retain the present interest rate of 5 percent for the time being. Analysts were divided recently, however, on if or when another rate hike will come.

A recent Reuters poll had one-third of the 50 economists surveyed saying that rates will rise to 5.25 percent by March. The other two-thirds said they believe rates will remain at 5 percent until at least the middle of 2007. Since that poll was taken, however, new data on house prices have shown that average prices were up 1.7 percent in November, more than had been expected. In addition, retail sales and manufacturing reports have been lower than hoped. All this could alter the outlook for interest rates in the UK as 2007 begins.

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