Comment on ECB raising rates

- Azad Zangana

The European Central Bank raised its main interest rate from 1.25% to 1.50% today. The move by the ECB was widely anticipated, and we expect one more 25 basis points rate rise this year. We expect the ECB to keep raising interest rates at a rate of 25 basis points a quarter. While our forecast is more aggressive than the market is currently pricing, by historical residence, this is a slow rate normalisation path

Azad Zangana

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    The latest and future increases in ECB rates will hurt the struggling peripheral economies, but at the same time, work to slow the booming exporters in the north, which need increases in interest rates to avoid higher inflation.

    In addition to the change in interest rates today, the ECB announced that it was suspending the application of the minimum credit rating threshold in the collateral requirements for the purpose of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Portuguese government. In other words, the ECB has removed the minimum credit rating of the collateral that Portuguese banks can use to access the ECB’s liquidity mechanism. This is clearly in response to the Moody’s downgrade of Portugal’s sovereign debt rating.

    Important Information:

    The views and opinions contained herein are those of Azad Zangana, European economist, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. For professional investors and advisers only. This document is not suitable for retail clients. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Services Authority. For your security, communications may be taped or monitored.

    Source: ETFWorld – Schroders

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