IMF waarschuwt voor gevaren van grote renteverhogingen in de euro-zone (en)

Just hours before the European Central Bank (ECB) is expected to raise interest rates for the euro area, the International Monetary Fund (IMF) has told eurozone ministers that Europe's economy is not strong enough for big rate hikes.

The eurogroup's finance ministers meeting in Luxembourg on Tuesday (6 June) heard a presentation of the IMF report which confirms the eurozone's inflation is set to "revert to its benchmark only slowly" while economic recovery is "gaining traction."

These are the two key arguments likely to be highlighted by the Frankfurt-based ECB on Thursday (8 June) when it is expected to announce its next move on interest rates.

The bank raised borrowing costs by a quarter percentage point in December and March and is tipped to repeat the action and up its main rate from 2.5 to 2.75 percent but has also hinted at the possibility of a half point rise.

But according to the IMF, even though some further increase in the eurozone rates "appears warranted," the conditions "for continued and thus more substantial tightening do not seem in place."

The Washington-based organisation pointed out that "headline inflation is expected to shift back below 2 percent in 2008," while continued rates hikes would require a faster economic recovery.

"Growing uncertainty in financial markets and an appreciating euro also argue for caution in raising rates, as does the uncertainty of the extent of policy accommodation because of falling potential growth and high saving," the report stated.

At Tuesday's meeting, the ministers discussed plans by the eurogroup's Luxembourg president Jean-Claude Juncker and EU monetary affairs commissioner Joaquin Almunia i to boost a dialogue with the ECB on interest rates policy, the FT reports.

The bank's recent steps have been criticised by some member states, MEPs and European trade unions for its negative consequences for the slowly recovering economy.

But ECB officials argue any political interference is out of the question and some basic discussion on the rates policy is already secured by Mr Juncker's participation in the top bank's meetings.