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The European Central Bank raises interest rates by 50bp

Commenting on the interest rate rise by the European Central Bank (ECB), in response to higher-than-expected inflation, Toby Sturgeon, global head of fiduciary investment services at ZEDRA, said: “The ECB raised rates by 50bps, the first rate rise in 11 years, bringing the key deposit rate out of negative territory. It came as somewhat of a surprise when many commentators expected a rise of 25bps, but it should be noted that many felt they would front load rate hikes and anticipate a 50bp hike at the next meeting. 

“The larger increase is in response to higher-than-expected inflation, which hit a record high of 8.6% in June, up from 8.1% in May. Unsurprisingly, the Euro jumped and bond yields in the region rose as they broadly appeared to have factored in 30bps of the 50bp rise. Importantly the ECB abandoned forward guidance and will be more event-driven going forward.” 

Sturgeon added: “Italy is once again in trouble and could spark another euro crisis.”

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