MercoPress. South Atlantic News Agency

Euro system basic rate increased 25 points to 3.5%

The European Central Bank at Friday's Governing Council meeting in Frankfort decided to increase the minimum rate for the Eurosystem by 25 points to 3.5%.

The ECB decision, which was expected, did not take markets by surprise following statements last week by the bank's officials.

The 25 points rise is the sixth in the last twelve months and as the Euro Zone economy expands at its fastest rate in six years, the ECB has expressed worries about increasing prices and inflation.

In previous statements ECB president Jean Claude Trichet has said there's "no room for complacency" regarding price rises, and the bank has been steadily raising interests since late 2005 following a historical low of 2% during two and a half years.

The EU economy this year is heading for a 2.7% growth, with strong recoveries in Germany and France, following five years of a lukewarm 1.4%; for 2007, 2% is forecasted. Inflation target for 2006 is in the range of 2%.

However there are growing concerns that the strengthening of the Euro vis-à-vis other currencies, which reached a record 20 months high 1.33 against the US dollar this week could impact on EU exports, particularly now that the US economy is cooling.

The EU is the world's largest exporter, nearly 1.5 trillion US dollars annually of which 20% is shipped to the US. A stronger Euro makes EU exports dearer for the US market.