Global markets are expecting an interest rate increase

Thursday, 7 April 2011 09:52

Global markets are expecting an interest rate increase Thursday from the European Central Bank, the question will be how much they will move and if more increases are planned in the coming months.

It is almost a given that an increase this month is a near-certainty after ECB President Jean-Claude Trichet's statement at a March meeting saying that the bank would use "strong vigilance" against an inflationary spiral. Eurozone inflation hit 2.6 percent in March, above the bank's goal of just under 2 percent.

The ECB central rate has stood at 1 percent since May 2009.

The rate increase is a concern to many due to the debt issues in some of the EU member states and the ongoing growth in other states. Therefore the ECB needs to control inflation yet not create issues with higher borrowing costs for those countries with a government debt crisis. Greece and Ireland have already been rescued and Portugal is a 90% certainty to avoid bankruptcy. Still with the ongoing issues in other parts of the world add further uncertainty in regards to rate rises.

The ECB is in a situation that they must find a common reference rate for all the member countries, the bank must find one rate that suits all 17 member countries.

The ECB is charting a different course from the U.S. Federal Reserve, which has not yet signaled readiness to begin raising rates from the current 0.25 percent.

The Bank of England's monetary policy committee will announce results of its meeting as well but no rate increase is expected.

The euro was trading at 1.4332 off the back of higher rate expectations.