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ECB raises rates to 4.5%
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August 31, 2000: 9:26 a.m. ET
Euro-zone's central bank lifts rates amid high oil prices, weak euro
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LONDON (CNNfn) - The European Central Bank raised its key interest rate by one-quarter of a percentage point to 4.5 percent on Thursday, as expected, aiming to head off inflationary pressures amid a climate of high oil prices and a weak European currency.
The central bank raised its minimum bid rate on refinancing operations, its primary interest rate, by 25 basis points - the fifth ECB rate rise this year. That matched most economists' forecasts, although some had expected the 17-person council to opt for a rise of one-half percent.
"The protracted depreciation of the exchange rate of the euro and the renewed rise in oil prices have increasingly put upward pressure on import prices and consumer prices in the euro area," the ECB said in a statement Thursday.
But economists said the ECB's rate hike may not be its last this year, as lofty oil prices and the weak euro - which makes imports more expensive in the 11-nation euro zone - filter through the economy in coming months.
"This is not going to be enough - we're still looking for another 50 basis points by the end of the year," said David Page, an economist at Investec Bank UK. "But it's the right move for the moment. A rise of 50 basis points would have cast doubt in the market about the sustainability of growth, in Germany in particular."
The latest monthly report by Germany's respected Ifo research institute last week showed business confidence in Europe's biggest economy fell unexpectedly for a second consecutive month in July.
ECB officials appeared to look past that Thursday, instead concentrating on the oil price picture and the weak currency.
Crude oil prices have been lingering near $30 a barrel range recently amid tight supply controls by OPEC member states and high consumption levels, in places such as the United States and Asia. That's up from near $10-per-barrel levels a year ago.
The high oil prices have sparked protests across Europe, such as in France, where fishermen blockaded ports Thursday as part of a demand that the French government take action to ease the bite of rising fuel costs. 
Meanwhile, the euro has been declining against the U.S. dollar. Recent data has shown Europe's economy is humming -gross domestic product in the euro zone grew at an annual rate of 3.4 percent in the first quarter - but the U.S. economy has been growing even faster. U.S. GDP rose at an annual clip of 5.3 percent in the second quarter, up from 4.8 percent in the first.
Top European economists and politicians, including German Finance Minister Hans Eichel, have said the euro's slump is due largely to that tough comparison with the U.S. economy - insisting that the euro-zone economy is still quite strong.
The euro got little relief from the rate hike, edging up to 89.58 U.S. cents from 89.43 U.S. cents in late New York trading Wednesday. The currency has been hovering just above its record low at 88.45 U.S. cents hit in May.
The central bank last raised interest rates by one-half percent to 4.25 percent at its June 9 meeting, and it has been steadily raising rates since last November.
Higher interest rates raise borrowing costs for companies, which tends to reduce their output, while raising loan rates for home buyers and other consumers who borrow. Capping consumption helps brake inflation pressures. 
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European Central Bank
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