ECB Still Will Boost Rates in September

From Staff Reports

The European Central Bank indicated it may still raise interest rates in September and announced another three month loan – this one $54 billion – to ease lending between commercial banks during the ongoing credit crunch, Bloomberg News reported.

The ECB has injected emergency funds into the global financial system over the past two weeks after the U.S. subprime-mortgage crisis spread to Europe and then made commercial banks more reluctant to lend to each other.

Yesterday, the Frankfurt-based ECB responded to speculation that it may hold off raising interest rates on Sept. 6 by saying it's sticking to the policy stance stated by President Jean-Claude Trichet on Aug. 2. At the time, Trichet pledged to show "strong vigilance" on inflation, a phrase he has used to signal each of the eight rate increases since late 2005.

"The ECB signaled that it still sees the current market turbulence as a financial market event rather than a grave risk to the overall economic outlook," Holger Schmieding, chief European economist at Bank of America Corp. in London, told Bloomberg in an interview. "The ECB has thus chosen to stick to its September rate plans unless market turbulence gets out of hand."