European interest rates remain accommodative despite latest rise

In line with expectations, the European Central Bank today opted for this year’s sixth increase in interest rates, which now stand at 3.5%.

The ECB has continued to warn against the risk posed by inflationary pressures as economic growth looks likely to lead to higher wages and price increases. So far, higher rates have failed to halt money supply growth or economic expansion, which this year is on track to reach the fastest pace in six years. However, ECB President, Jean-Claude Trichet said that monetary policy remains accommodative, encouraging speculation that further increases are on the cards for next year.

Roger Guy, manager of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund, commented, “As this decision was more or less universally anticipated and had already been factored in, we expect it to have little impact on markets. As we had also predicted, Trichet’s apparent lack of alarm over the recent strength of the euro suggests he is optimistic that the region's economy can cope with a stronger currency. We believe that the economy is at the beginning of a strong, self-sustaining investment cycle, which will likely be the key driver of growth in 2007. Prospects for strong capital investment look set to continue into next year and coupled with rising employment levels and a pick up in wage growth, we expect European Gross Domestic Product growth to beat consensus expectations in 2007.”