The European Central Bank and the Bank of England left their key interest rates unchanged on Thursday but the ECB president said his bank’s rates could go up by a small amount at the next meeting.
ECB President Jean-Claude Trichet took a hawkish tone on inflation after the bank left its key rate unchanged at 4 percent. He said the ECB was in a state of “heightened alertness” over inflation.
The Bank of England left its main interest rate at 5 percent earlier Thursday.
At a news conference, Trichet said that he was “not excluding” that rates could go up “a small amount” at the ECB’s next meeting and that some members of the bank’s governing council were in favor of an increase at Thursday’s gathering.
Higher rates are central bankers’ chief weapon in fighting higher inflation, and both banks face price levels that are higher than they would like. Trichet, citing the ECB mandate to fight inflation, has stayed away from rate cuts even as the U.S. Federal Reserve has lowered rates to stimulate a shaky U.S. economy.
The Bank of England has cut twice, but now appears to be holding off over similar inflation worries.
The European Union’s statistical agency, Eurostat, has estimated that inflation in the 15-nation euro zone hit 3.6 percent in March and May — far above the ECB’s stated goal for inflation of below, but close to 2 percent over the medium term.
In Britain, the Bank of England’s quarterly inflation report in May warned that inflation could spike as high as 3.7 percent this year.
Economists expect slowing growth to prompt the British central bank into further cuts eventually to kickstart the economy, but the inflation outlook has clouded the timing of further trims. Some predict the bank will lower rates in August, while others suggest that may be too early.