They had to do it, but ...

Officials meeting in Frankfurt today increased the benchmark interest rate by 25 basis points to 1.5 percent, matching forecasts by all 55 economists in a Bloomberg News survey. That’s the highest since March 2009. The central bank will raise borrowing costs further in October, according to a separate survey. (Bloomberg)

The ECB worries about the strong countries of northern Europe.

These countries have to remain strong with no inflation so that they can pay the bills of the peripheral countries.

I am not sure how successful the ECB is going to be now that is also accepting the defaulted bonds as collateral.

Furthermore, with inflation at 2.7% short-term interest rates should be close to 4%. The point? Real interest rate in Europe, as well as in the US, are too low relative to inflation and are inflationary.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year by Timer Digest

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