The European Central Bank (ECB) has raised its key interest rate by a quarter of a percentage point to 3.75%, marking their new highest level in the past five years, the bank reported.
Economists largely expected this decision, considering the indications of continued strong growth in the eurozone economies. Furthermore, their forecasts were influenced by last month’s statements from ECB President Jean-Claude Trichet that inflation risks require vigilant caution. With the latest interest rate move, the ECB has raised rates a total of seven times in the current cycle of tightening monetary policy in the eurozone, which began in December 2005.
In contrast, the Bank of England (BoE) did not change its key interest rates at its meeting on Thursday, according to a separate statement from the bank. They remain unchanged at 5.25%, after the bank raised them by a quarter point in January. Since August of last year, their total increase amounts to three-quarters of a percentage point.
European stocks strengthened in anticipation of the decisions from the two central banks regarding interest rates, supported by gains in the mining sector and prices of Asian stocks. The ECB’s decision contributed to the pressure on the Croatian kuna, which continues to strengthen as a result of maintaining the required reserves, the period of which is nearing its end. This results in an increase in interest rates for shorter terms, particularly for the period up to one week.
