European Central Bank ups interest rate

The European Central Bank raised its benchmark interest rate a quarter point to 4.25% today in an effort to combat fears about escalating inflation in the region. “This decision was taken to prevent broadly based second-round effects and to counteract the increasing upside risks to price stability over the medium term,” European Central Bank president Jean-Claude Trichet said in a statement. “Maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long-term inflation expectations firmly anchored in line with price stability.” The interest rate hike comes despite widespread economic uncertainty in Europe over rising oil and food prices. Across the pond, the United States has taken a different tactic to revive a slumping economy, with the Federal Reserve slashing the key interest rate 3.25% since mid September (InvestmentNews April 30). At its last meeting last week, the Fed kept the federal funds rate unchanged at 2 percent, marking the first time in 10 months that the central bank has chosen not to reduce interest rates at one of its regular meetings.