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ECB rates, euro seen higher this year

FRANKFURT: The European Central Bank is likely to boost its key interest rate in the coming four months and the euro is expected to vault parity with the dollar by year's end, a Reuters poll of around 180 German money market dealers showed on Sunday.

About 90 of those surveyed said they expected the ECB to nudge up its key refinancing rate to 3.75 percent by August from the current 3.50 percent, whereas 43 believed the rate will go up to 4.00 percent by this summer.

A majority of those canvassed expect the next move to occur in May, matching forecasts by analysts after the last ECB council meeting on Thursday.

ECB President Wim Duisenberg said at the news conference following the first out-of-town meeting of the Frankfurt-based bank in Madrid last week that rates were still on an upward trend, but signalled the ECB was in no hurry to tighten monetary policy.

Duisenberg indicated that stronger inflation and robust M3 growth amid expectations of euro zone economic growth of around three percent this year and next could prompt the bank to move soon again to stem the threat of inflation in the medium-term.

The bank last raised interest rates by 25 basis points on March 16.

Several dealers said they would prefer the ECB to take a 50 basis points steps rather than moving more frequently by smaller margins.

"We would receive such a policy well as it would take much nervousness out of the market and make future planning easier," a dealer said.

As for foreign exchange developments a majority of 103 dealers expect the much battered euro to strengthen to levels above parity versus the U.S. dollar before year's end.

The euro started its life at around $1.17 in early 1999, but has lost around 20 percent of its value since then.

The euro stood at $0.9555 at 1445 GMT on Sunday.

Only 20 traders said they believed the single European currency had appreciation potential to levels above $1.10 this year.-Reuters