European Central Bank set to raise its interest rates

PanARMENIAN.Net - The European Central Bank is set on April 7 to raise its interest rates for the first time since July 2008 as concern over inflation trumps fears of collateral damage to weaker eurozone economies.

"Even a small monetary tightening will affect the eurozone economy as a whole and the peripheral economies in particular," Capital Economics European economist Ben May said.

Two questions analysts are asking is how big an increase the ECB could announce to bolster its inflation-fighting credentials, and whether it would be the first of a series that could extend into 2012, AFP reports.

In March, ECB president Jean-Claude Trichet flagged a rate hike as inflation climbed well above the bank's target of just below 2.0 percent and suggested it might be on the order of 25 basis points to 1.25 percent.

The benchmark rate for the 17-nation zone has been at a record low 1.0 percent since May 2009. With inflation at 2.6 percent and climbing, the ECB's governing council appears to have decided to act ahead of its peers the US Federal Reserve, the Bank of England or the Bank of Japan.

But countries like Greece, Ireland and Portugal that are struggling with public deficit and debt crises will not welcome higher rates more appropriate for stronger eurozone economies such as France and Germany.

After approving exceptional measures during the financial crisis, the ECB wants to move monetary policy back towards normal and is pressing governments to resolve chronic solvency issues.