Interest rates expected to rise again next month

The cost of borrowing is expected to rise again next month as the European Central Bank (ECB) hinted at a new revision of interest rates in July while deciding to keep unchanged the current 1.25 per cent rate during its monthly monetary policy meeting of the EU's central bank governors in Frankfurt.

Clearly indicating a rise next month, ECB President Jean-Claude Trichet said that "strong vigilance" is needed because of continuing high inflation. He said that there was still "upward pressure on inflation" because of high prices for energy and commodities.

The President of the ECB said that the bank would act "in a firm and timely manner" to prevent price developments leading to inflationary pressures. But he said the ECB had not made a decision to change its rates in the near future and would base any decision on available data.

"We decide when it is necessary to anchor inflation expectations. We are not signalling any particular pace for the next decision on our interest rates," he said.

The latest EU economic data showed growth in the eurozone of 0.8 per cent in the first quarter of 2011. Growth in the last quarter of 2010 was 0.3 per cent. According to Mr Trichet strong exports would help boost growth.

Annual growth in the eurozone is estimated to be 1.5 and 2.3 per cent this year and 0.6 to 2.8 per cent in 2012.

Inflation is expected to be between 2.5 to 2.7 per cent this year and 1.1 to 2.3 per cent in 2012.

Malta's economy is expected to perform better than the Euro zone's average but inflation is also expected to be higher.

July's expected rise in interest rates is expected to be the second one this year after a three year period which saw interest rates at the lowest level ever since the introduction of the euro.

In April the ECB raised its reference interest rates from 1 to 1.25 per cent.