The European Central Bank today signalled the extent of its inflation fears by raising the main policy rate by 25 basis points to 4.25%.
The rate had been held at 4% since June 2007 but the move up was widely expected after comments made by ECB president Jean-Claude Trichet at the June policy meeting.
Marco Pirondini, global chief investment officer at Pioneer Investments, said late last month that a rate rise would be bad for the eurozone, causing the currency to rise, equities to fall and a probable spike in oil prices as the strong euro put further pressure on the dollar. However, he added, “in Europe, the ECB has a mandate to target inflation. You can’t complain if they don’t care about growth; it’s out of their mandate.”
The Royal Institution of Chartered Surveyors said today that the impact of the rate rise on euro area housing demand would be felt most keenly in those countries where mortgages are most exposed to the short end of the yield curve, particularly Spain and Portugal, while Germany and France will be more insulated.
In Germany less than 10% of mortgages are priced at money market rates, while the figure in Portugal is nearly 100%, according to RICS.
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From 1 March