ECB Holds Rate, Trichet Predicts Hike

European Central Bank published its scheduled Monetary policy decisions today, leaving the main refinancing operations interest rate at 4.00%.
Jean-Claude Trichet, Central Bank President, commented this decision saying that ECB is ready to fight the pressure of the rising inflation.

EUR/USD jumped back almost 1% after being generally bearish this week. Accelerating inflation, which reached its yearly highs last month, makes ECB to act the opposite to other central banks way. While others are concerned with a financial crisis and are ready to sacrifice some short-termanti-inflation policies to add some more liquidity to the credit system, European Central Bank felt that it would be better to keep rates high without giving inflation risks an ease.

ECB also lowered their expectations for the economical growth in 2008 (from 2.3% to 2%) and increased the forecast for inflation in Eurozone (from 2% to 2.5%). With Trichet being pro-hike rather than pro-cut, euro will probably see some more growth against low-yielding currencies, but in the longer term, European economy might appear to be damaged by these high interest rates during the financial crisis, which is yet unsolved.

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