Rate hike 'likely' despite Eurozone slowdown
Growth in the eurozone fell moderately last month, according to new figures released by the European Central Bank (ECB).However analysts have warned that despite the slowdown, the bank is still likely to raise its benchmark interest rate to four per cent next week â€" as anticipated.The annual rate of growth of M3, a broad measure of money supply in eurozone nations, fell to 10.4 per cent in April, down from 10.9 per cent in March.ECB figures also showed a drop in the annual rate of growth for consumer credit lending, which was down to 6.9 per cent last month â€" a decrease on the 7.1 per cent recorded in March.The annual rate of growth for loans to households also decreased in April, down from 7.9 per cent in March to 7.6 per cent.Growth in lending for house purchases on an annual basis also dropped from 8.9 per cent to 8.6 per cent last month.Commenting on the figures, Global Insight chief economist Howard Archer said that while the data appeared to indicate that consecutive interest rate rises were "gradually feeding through" to curb household borrowing, further increases were likely in order to dampen growth.Economists are widely expecting the ECB to raise its benchmark interest rate next week in order to curb inflation and rein in growth."While the money supply and credit data will be broadly welcomed by the ECB, the growth rates remain far too high for the bank's comfort and April's slowdown will not deter the bank from pressing ahead with a heavily signalled 25 basis points interest rate hike to four per cent in June," said Mr Archer.Referring to recent "hawkish" comments made by ECB governing council member Axel Weber and other bank officials, Global Insight also indicated it expected rates to rise further to 4.25 per cent by September.Earlier this week Mr Weber hinted that the ECB was prepared to consider further rate rises in order to stem inflation due to a "stronger than previously expected" economic recovery in the eurozone."If necessary, we also have to move into a territory that is portrayed as restrictive, if that is needed to control to control inflation," he told the Financial Times newspaper in an interview.Global Insight said the ECB was likely to set interest rates at 4.25 per cent by the end of the summer as an "insurance" against medium-term inflation risks resulting from "buoyant" eurozone growth, a tighter labour market, an "excessively strong" money supply and credit growth and a renewed firming of oil prices.
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