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Merkel Adviser Sees Two More ECB Rate Increases This Year

Lars Feld, a member of German Chancellor Angela Merkel’s council of economic advisers, said he expects the European Central Bank to raise borrowing costs twice more this year.

While the Frankfurt-based ECB took a “very good step” in increasing the benchmark interest rate by 25 basis points to 1.25 percent last month, “it’s better for the ECB to wait until summer” to raise borrowing costs further, Feld told Andrea Catherwood on Bloomberg Television’s “Last Word” today. He forecast borrowing costs to reach 1.75 percent by year-end.

ECB President Jean-Claude Trichet signaled today that the bank will keep its benchmark on hold through June, saying that policy makers will monitor inflation risks “very closely.” While surging oil costs have fueled price pressures across the 17-member euro region, tougher austerity measures in countries from Ireland to Spain are clouding the growth outlook.

A restructuring of Greek debt “as early as this year would be useful” as it’s “almost impossible” for the country to achieve fiscal consolidation, Feld said. Ireland would likely seek to renegotiate its bailout terms if Portugal received a lower interest rate on its aid package, he said.

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