ECB move focuses on Germany at the expense of the periphery
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The European Central Bank has raised its main interest rate for the second time this year with a rise of 0.25 per cent to 1.5 per cent.
The decision is seen as a response to rising inflation in the core European economies such as Germany but it is likely to be at the expense of struggling peripheral eurozone economies.
Swiss & Global Asset Management head of investment management Stefan Angele says: “In its effort to keep inflation low, the ECB is obviously focusing on core countries like Germany that are growing strongly. Helping the weaker economies with weak growth but large debt problems requires other measures anyway.”
Schroders European economist Azad Zangana says he expects to see another rise this year: “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.
“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.”
Rathbone Unit Trust Management head of multi-asset investments David Coombs says: “The ECB is completely wrong to be setting its monetary policy with just the German economy in mind. This is what happened in the early days of the eurozone, which led to the boom in the peripheries and ultimately to the mess we are trying to clear up now. Monetary policy needs to accommodate the whole of the eurozone or it will be very difficult for the peripheries to recover or remain part of the euro.”
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