BRUSSELS, June 12, 2008 (AFP) – ECB is preparing for a “moderate increase” in interest rates next month but not a series of hikes in the face of record inflation, governing board member and Belgian central banker Guy Quaden said. “What’s on the table for the month of July, is a moderate increase and not the start of a series of increases,” the Belgian central bank governor said Thursday, in remarks embargoed until Friday.
Last week, ECB president Jean-Claude Trichet said a small increase in interest rates was on the cards next month.
Since then, other ECB decision makers have sought to correct market expectations of a flurry of hikes this year.
The ECB shifted towards increasing interest rates after inflation in the 15 nations sharing the euro reached a record 3.6 percent in May, far above its target of close to but less than 2.0 percent.
“The longer and the more inflation deviates from levels consistent with our definition of price stability, the more difficult it will become to keep inflation expectations well anchored,” Quaden said. “Risk territory has been reached. Therefore, it is I think legitimate to contemplate a limited adjustment of our monetary policy stance, in order to assure a solid anchoring of i