MercoPress. South Atlantic News Agency

Euro rate unchanged; UK rate hops to 4,75%

The Governing Council of the European Central Bank decided this Thursday that the minimum bid rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 2%, 3% and 1% respectively.

However in London the Bank of England decided to raise the basic rate a quarter percentage to 4,75%, the fifth such increase in eight months.

The ECB announcement although expected by market analysts came as a relief given the still weak recovery of the Euro zone which is now threatened by the ballooning oil prices that could fuel inflation. ECB's next meeting is scheduled for September 2.

Most economists believe the ECB will keep rates unchanged until 2005 to give recovery breathing space, even when the latest inflation projections are above the 2% target.

The Bank of England decision came amid evidence of accelerating economic growth which could fuel inflation in the months ahead. It's also an attempt to cool the property market in the United Kingdom and contain soaring consumer debt.

But David Frost from the British Chamber of Commerce warned that "interest rate overkill would have damaging consequences" for business and companies performance.

British exporters also fear that rising rates will increase the value of sterling against the US dollar and Euro, making British goods more expensive.

In its official statement the Bank of England said that with output running at a high level "continues strong growth is likely to lead to inflationary pressures".

The Bank of England's target is to keep inflation in line with the Treasury estimate of 2% in 2004, one percentage point up or down.

The coming week the United States Federal Reserve Open Market Committee is scheduled to meet and there could be another gentle step in the Fed's policy of gradual increase of interest rates that still remain at their lowest in half a century.