ECB Hikes!

The European Central Bank decided to hike rates at it’s July meeting as promised!  The base interest rate on the Euro is moved from 4.0 percent to 4.25 percent.  The initial Euro reaction was muted as the markets were holding their breath for the US nonfarm payroll numbers.

The ECB made the following statments about the rate decision:

• Rate hike intended to counter inflation risk


• Eurozone growth moderating, but ongoing


• Eurozone inflation is “worrying”


• Medium Term inflation risk is to the upside


• Inflation expected to moderate in 2009


• The decision to hike rates was unanimous
  

The ECB is really showing what they are made of here.  The Fed is talking about growth problems and mentioning inflation and the ECB is  acting instead of just talking.  The risk being that the ECB puts too much pressure on the European economy and causes more contraction on growth.  It should be interesting to see how that plays out.  The ECB could become a big hero if they are successful at fighting inflation during a downswing in growth for Europe.