ECB may raise interest rates as inflation breaches limit

The European Central Bank (ECB) indicated it may raise interest rates as inflation breached the bank’s 2% limit for the first time in over 25 months.

Jean-Claude Trichet

Jean-Claude Trichet, the president of the ECB, pointed to the rise to 2.2% recorded in December.

While sovereign nations such as Germany are experiencing economic growth, there is a disparity in the eurozone with nations including, Greece, Ireland and Italy, who have been experiencing contractions in their economies.

The disparity makes it difficult for an all-encompassing economic policy to be applied to the eurozone.

Axel Weber, a ECB council member, says the crisis still poses a challenge that needs to be resolved before it potentially becomes a more serious threat to recovery. (article continues below)

There was encouraging news yesterday, however, as Spain met its maximum target for its first bond auction of the year, despite a contraction of its economy in 2010.

€3 billion (£2.5 billion) of five year bonds went at a 4.5% yield, leading to Spanish borrowing costs to fall for the third day in a row.

Spain is currently facing the prospect of repayments totalling €15.5 billion in April this year.