EU Economy
European Central Bank raises benchmark rate to 1.25%; Bank of England keeps rate at 0.5% -- lowest since it was founded in 1694
By Finfacts Team
Apr 7, 2011 - 1:31 PM

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An image of the planned new headquarters of the European Central Bank in Frankfurt. ECB President Jean-Claude Trichet layed the foundation stone on May 19, 2010. The €850m headquarters will consist of two towers—one 41 floors high and the other 44 floors—joined by a massive conference and visitor centre where a historic fruit-and-vegetable market once stood. It will be completed in 2014. Trichet's eight-year term expires in October 2011.

The European Central Bank (ECB) as expected raised its benchmark interest rate from 1.0% to 1.25%, at a meeting of the governing council in Frankfurt, today. In London, the Bank of England kept its rate on hold at 0.5% -- the lowest since it was founded in 1694.

It was the first ECB rate rise since July 2008, when the rate was hiked to 4.25% and subsequently cut in a series that ended at 1% in May 2009.

Trichet flagged the move on March 3 when he warned that "strong vigilance" was needed on inflation. At his press conference, he said a possible rate this month is
"certainly not the start of a series.”

Eurozone annual inflation hit 2.6% in March compared with the ECB's target of "below but close to 2%."

ECB President Jean-Claude Trichet will address a press conference from 1:30 pm Irish time.

Webcast

In London, the Bank of England’s Monetary Policy Committee today voted to maintain the official bank rate paid at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200bn - -  purchases of sovereign bonds known as quantitative easing.

The minutes of the meeting will be published at 9.30am on Wednesday 20 April.

The previous change in bank rate was a reduction of 0.5 percentage points to 0.5% on 5 March 2009. The programme of asset purchases financed by the issuance of central bank reserves was initiated on 5 March 2009. The most recent change in the size of that programme was an increase of £25bn to a total of £200bn on 5 November 2009.

The Bank said it will continue to offer to purchase high-quality private sector assets on behalf of the Treasury, financed by the issue of Treasury bills, in line with the arrangements announced on 29 January 2009.


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