Euro zone interest rates could rise still further, even after the quarter-point increase announced by the European Central Bank today, ECB President Jean-Claude Trichet said. Interest rates are now at four year highs.
Despite the quarter-point increase in the ECB's benchmark 'refi' refinancing rate to 3.25%, euro zone interest rates 'remain at low levels,' Trichet told a news conference in Paris today.
'Our monetary policy continues to be accommodative. If our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation,' the Frenchman said, using the central bank terminology for raising interest rates.
The ECB's policy-setting governing council will therefore continue to monitor very closely all developments so as to ensure price stability over the medium and longer term,' Trichet said.
Today's decision to raise rates by a quarter of a percentage point for the fifth time in 10 months had been taken 'unanimously' by the bank's 18-strong governing council, the body responsible for formulating monetary policy for the 12 countries that share the euro, Trichet said.
While all possible scenarios had been discussed, a steeper half-point rise had not been considered to be appropriate at the current time.
The ECB chief refused to comment on whether monetary conditions could continue to be tightened in 2007, simply saying that the bank would act when and as necessary.
'Today's decision will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability,' Trichet said.
The ECB chief also said that economic activity in the eurozone may 'moderate somewhat' in the coming months, but will remain 'robust'.
The euro zone economy grew by 0.9% on a quarterly basis in the three months to June. Current data for the third quarter 'continues to support the assessment that economic activity will grow robustly while possibly moderating somewhat,' Trichet said.
'Looking ahead to the remainder of 2006 and 2007, the conditions remain in place for the euro area economy to grow at solid rates around potential with some volatility in the quarterly growth rates likely to emerge around the turn of the year,' the Frenchman continued.
Risks to the shorter term growth outlook were 'broadly balanced, although the recent fall in oil prices - if it were to prove lasting - has the potential to lead to somewhat stronger demand and output growth,' he added.
Today's rate increase will add about €15 to monthly repayments for every €100,000 borrowed. Added to the the other four increases announced so far, it means that in just 10 months mortgage borrowing costs will have risen by €75 a month for every €100,000 borrowed.
Irish house buyers have also had to endure rising house prices throughout the same eight months. When this is taken into account, monthly repayments for new house buyers will have gone up by an average €431 a month since last December.
* Northern Rock is to increase its savings interest rates by up to a quarter of a point following the ECB rates rise. Its demand online and SSIA rates both go up 0.25 points, while all other variable accounts rise by between 0.1 and 0.2 points.
Meanwhile, Bank of Ireland is cutting some of its fixed mortgage rates from October 9. The 5-year rate comes down from 4.89% to 4.85% and the 10-year rate falls from 5.19% to 4.99%.
