The European Central Bank has shocked financial markets by signalling that interest rates will almost certainly rise in April, taking a markedly more aggressive stance on inflation than the Bank of England and US Federal Reserve.
Sending the euro sharply higher, Jean-Claude Trichet, ECB president, on Thursday warned that the euro’s monetary guardian was exercising “strong vigilance” – code for a rate increase just a month away. A hike next month from the record low of 1 per cent, was “not certain, it is possible” he said. Inflation risks were on the “upside”, especially if oil and commodity prices rose further, while monetary policy was “very accommodative”, the ECB president said.
Economists warned that the ECB’s action risked backfiring, pointing out that its last interest rate increase in July 2008 came just months before the collapse of Lehman Brothers.