ECB hikes base interest rate to 4 per cent

06 June 2007

Mumbai: The European Central Bank (ECB) has raised its base interest rate for the eurozone by 0.25 percentage points to 4.0 per cent, effective June 6.

The quarter percentage hike, the eighth since the ECB first started tightening monetary policy in December 2005, after a 30-month freeze at 2 per cent, doubles the key interest rate in just 18 months.

Analysts expect the current hike to be followed by two or more similar increases later this year.

The increase comes amid a growing optimism in the eurozone economy. Spearheaded by a resurgent Germany, economic growth in the EU is expected to be around 2.5 per cent this year and next.

Unemployment in the eurozone, which is already at a 15-year low of 7.1 per cent, is also expected to fall further.

But, with the euro at near-record levels against the dollar and other currencies, some European leaders like the new French president Nicolas Sarkozy are worried that the ECB could damage the eurozone''s recovery by raising borrowing costs and forcing the euro even higher.