ECB 'unlikely to raise interest rates'

THE European Central Bank (ECB) is unlikely to increase interest rates in the short-term after the recent rise in oil prices, according to Bank of Ireland economist Dr Dan McLaughlin.

Oil prices hit a fresh high yesterday as Nymex crude rose to $54.62 a barrel as the euro strengthened against the dollar to hit $1.2615.

Mr McLaughlin said the US Federal Reserve is downplaying the effects on growth of high oil prices and has signalled another rise in rates in early November.

In Bank of Ireland's October economic bulletin, Mr Mclaughlin said a €10 rise in oil prices reduces growth by 0.5 points and adds a similar amount to inflation.

In August and September, the ECB appeared to be preparing for a rate rise before the end of the year to combat inflation but recent comments suggest it is now more worried about growth, he said.

Eurozone finance ministers have expressed disquiet at a new surge in oil prices with France calling for urgent action by the EU to address the latest threat to growth.

"In view of the urgency of the problem currently facing our countries, I definitely want us to adopt as soon as possible a series of effective measures," French Finance Minister Nicolas Sarkozy said.

He recalled an appeal by the Group of Seven nations to, in his words, "improve market transparency in order to limit uncontrolled speculation" and for the EU to copy the US in publishing monthly oil stocks data.

Meanwhile, Finance Minister Brian Cowen said there were no problems with the euro's current exchange rate.

He said exchange rates were a matter for the ECB and financial markets.

Mr Cowen also expressed satisfaction with efforts being made by France and Germany to bring their deficits below EU limits.