Europe: European Central Bank Raises Interest Rate To 1.25%

In-line with the well leaked decision, the European Central Bank increases interest rate by 25 basis points to 1.25%. Nothing too surprising, as it has effectively be pre-announced.

The impact will be remained to be seen, as Portugal has just asked for a bailout, so that the whole story isn’t looking very good. Of course, inflation is a concerned as the headline inflation for the whole Eurozone rose to 2.6%, but in the case of the Eurozone, the inflation figures across different countries vary wildly.  And oddly enough, one of the most troubled countries, Greece, has the inflation rate of well over 4%, while Ireland has only just come out of the negative territory.

No matter what, the interest rate hike will not be good for them.

In the press conference, Jean-Claude Trichet said monetary policy remains reasonably accommodative even after the 25 basis points rise, though he is concerned about the upside risk of inflation. Inflation stemmed from the increase of energy and food. Risk remains on the upside as far as inflation is concerned because of unrest in the north Africa and strong economic growth in emerging market and overall economic growth.

This article originally appeared here: Europe: European Central Bank Raises Interest Rate To 1.25%
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