ECB expected to Raise Interest rates to 3.75%, BOE to Keep UK rates on Hold at 5.25%

By: Sarah_Jones

The Euro rallied in the lead up to this months European Central Bank decision, where it is widely expected that European Interest Rates will be raised to 3.75% to curb wage inflation, especially in Germany.

The hike will be the 7th in just over 2 years, with expectations of a further rate rise, possibly in June to 4%. However recent turmoil in the financial markets may put that in doubt, especially if the shocks from China continue for the next few months which will likely impact European economic growth. Jean-Claude Trichet will make the likely trend clearer in his statement following the ECB decision.

Meanwhile The Bank of England is expected to keep UK Interest rates on hold at 5.25% after Januarys surprise rise continues to have an impact on the UK economy and inflation, which showed a fall for January figures released in February. However traders are still wary of another surprise, hence the British Pound staged a rally on Wednesday as traders squared short positions in the lead up to the banks decision.

However, at least one further interest rate hike is expected later this year, possibly in May 2007, especially if the decline in CPI figures released in February prove temporary. The Market Oracle forecast is for UK Interest rates to hit 5.75% this year.

By Sarah Jones
The Market Oracle
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