May 3, 2006	Wednesday	Rabi-us-Sani 4, 1427

FRANKFURT, May 2: The European Central Bank has more or less ruled out a rise in eurozone interest rates this week, but will likely continue to prepare the financial markets for a tightening of monetary policy in June, ECB-watchers here said on Tuesday.

In a survey of 30 economists by AFP and its financial news subsidiary AFX, all experts said they were expecting the ECB, the guardian of the euro, to hold its key interest rates steady when its governing council holds a regular monthly policy-setting meeting on Thursday.

However, almost all of the analysts polled — 29 of the 30 — predicted that the ECB would raise its benchmark “refi” refinancing rate by a quarter of a percentage point to 2.75 per cent when the council meets in Madrid on June 8.

The ECB has raised the rate twice since December, both times by 0.25 percentage point to the current level of 2.50 per cent.

Recent economic data from the 12 countries that share the euro all point to a further rise in borrowing costs.

Economic confidence in the region is buoyant, runaway oil prices are pushing up headline inflation and the money supply — which the ECB monitors as a barometer of medium-term inflation — is growing much faster than the bank would like.

In fact, most observers agree that all the data would support a rise in interest rates as early as this week.

Economic confidence in the single currency area is at its highest level since mid-2001.

Area-wide inflation accelerated to 2.4 per cent in April from 2.2 per cent in March — way above the European Central Bank’s ceiling of 2.0 per cent.

And money supply data suggest that medium-term price pressures are building up further up the inflation pipeline as well.

The trouble is, ECB President Jean-Claude Trichet effectively ruled out such a move at the bank’s last monthly news conference in April, signalling instead a rate rise in Madrid in June.

Schmieding at Bank of America said the ECB might even raise rates by half a percentage point in June, instead of the anticipated quarter-point rise.

Bear Stearns economist David Brown agreed.

Unfortunately they have made their bed for a move in June and will have to lie with it now. The interesting question now is whether it moves by a quarter point in June or goes for a bolder half point move, Brown said.—AFP