Ireland’s Guide To Money And Living

Japan crisis may force interest rate rethink

Posted March 18, 2011

Speculation is mounting that the European Central Bank may not raise interest rates in the wake of the tragic events in Japan.

“We will always consider all new information available and it (Japan) will be part of our global assessment,” Bank of France governor Christian Noyer said this week.

The bank had been expected to raise the current record low of 1 per cent to curb potential inflation from soaring oil prices in April but Noyer, who is a member of the ECB’s 22-person governing council, has sparked speculation that the ECB will hold off.

Experts believe that the events in Japan, the world’s third largest economy after it was overtaken by China in February, may put the brakes on global economic growth and thus ease inflationary pressures.

Asked if higher oil prices also threatened euro zone economic activity, Noyer said only that “the current course of action of the ECB greatly supports the economy and will continue to do so”.

Financial markets have been slammed this week by fears over the impact of the disaster in Japan, with investors piling into safe-haven assets like US and German bonds.

ECB president Jean-Claude Trichet said earlier this month that while a rate hike in April “was possible, it is not certain”.

A rise in eurozone rates will hit 400,000 homeowners who have tracker mortgages, as well as the 200,000 with variable rates.