Claus Vistesen reports on the European Central Bank's decision to raise its overnight interest rate target by 25 basis points, and awaits "the hints we are given to the future course" of policy. The hints have arrived. From Bloomberg:
European Central Bank President Jean- Claude Trichet said more interest-rate increases may be needed to curb inflation after the bank raised its benchmark rate for the fifth time in 10 months today.
"The market has in mind further moves, I wouldn't say anything to correct this sentiment,'' said Trichet at a press conference in Paris after the central bank raised the refinancing rate to 3.25 percent from 3 percent. "It will remain warranted to further withdraw monetary accommodation'' should the economy progress as the ECB forecasts...
"The tone of Trichet's commentary at the ECB press conference remains hawkish,'' said David Brown, chief European economist at Bear Stearns International in London. "The suggestion of progressive further withdrawal of monetary accommodation implies that the ECB probably intends to extend its tightening cycle beyond December into next year.''
That opinion was certainly shared by others. From the International Herald Tribune...
The ECB "clearly has a tightening bias and would like to raise rates to 4 percent," said Andreas Rees, an economist at HVB Group in Munich. "The question is whether the economic data will allow it to. We think growth will slow, and that will prevent the ECB from raising rates next year."
... from the Financial Times...
“We consider the ECB is following a normalisation process to bring the short-term rate close to a hypothetical ‘neutral’ level that could be estimated at between 3.5 to 4 per cent,” said Vincent van Esch, economist at ING Financial Markets.
... from the Wall Street Journal:
Commerzbank economist Michael Schubert said recent hawkish rhetoric from the ECB suggested it would "stick to its key message" that further gradual monetary tightening is still warranted.
Mystery solved.