By Marcus Leach
Despite Portugal being in a dire situation the European Central Bank has decided to raise the interest rate by 0.25%, fr the first time in almost three years.
The announcement was made shortly before the Bank of England's Monetary Policy Committee voted to maintain its historic low of 0.5%, though experts predict inflationary pressures will see a rate rise in the coming months.
At today’s meeting the Governing Council of ECB took the following monetary policy decisions:
- The interest rate on the main refinancing operations of the Eurosystem will be increased by 25 basis points to 1.25%, starting from the operation to be settled on 13 April 2011.
- The interest rate on the marginal lending facility will be increased by 25 basis points to 2.00%, with effect from 13 April 2011.
- The interest rate on the deposit facility will be increased by 25 basis points to 0.50%, with effect from 13 April 2011.
“Only time will tell if this rate rise proves to be as misguided as the 0.25% addition the ECB voted for in the summer 2008, a few months before the first wave of the credit crunch hit the markets," said Jeremy Cook, chief economist at World first foreign exchange.
“Granted, they are abiding by their mandate that inflation is above the ECB's target of 2%, the latest figure was 2.6%, however most of this inflation is imported in the form of food and fuel.
“Wage price inflation has not been increasing in that part of the world and I think therefore a rate hike is not warranted.
“It won’t stop the price juggernaut the entire world is facing and will hurt those on the periphery more than it helps those in the core.”