European banks joined euro zone politicians, trade unions and businesses in criticising today's expected European Central Bank interest rate rise, saying it would hurt a fragile economic recovery.
In its semi-annual forecast, the European Banking Federation said it expected the ECB to raise rates by 25 basis points today to 2.25 per cent and then again by another 25 basis points in the first quarter of 2006.
"We appreciate the need for vigilance in protecting against inflation," said Alejandra Kindelan, head of the Federation's Economic and Monetary Affairs Committee.
"But we do not see the clear sign of a lasting revival in domestic demand or substantial price effects from higher raw material costs, which could justify an increase in rates."
The Federation represents the interests of more than 4,500 banks from EU member states as well as Iceland, Norway and Switzerland, with over 2.3 million employees and assets of nearly €20,000 billion.
It forecast economic growth in the euro zone would accelerate to 1.7 per cent next year from 1.4 per cent expected for this year while headline inflation would fall to 2.0 per cent from 2.2 per cent this year.
"The recovery is fragile and that's why we would have liked them (the ECB) to wait and see," Ms Kindelan told a news conference ahead of the ECB decision, due to be announced at 12:45pm.
"A 25 basis point rate rise will not have a significant impact on the economy, but could have an impact on confidence," she said, noting consumer confidence was still the weakest point of the economy in the 12 countries using the euro.
The Federation's outlook, based on a poll of chief economists, forecast the oil price would ease to $54.8 per barrel in 2006 from recent highs of more than $60.