As expected the European Central Bank decided to raise the interest rate by 0.25% to 1.5%; this rate decision didn't seem to affect the financial market as the Euro to US dollar continues to moderately fall. What does this decision mean to the financial markets and in particular the commodities market?
The European Central Bank convened today and decided to raise the Euro Area interest rate by 0.25 percent point from its current level of 1.25% to 1.5%. This is the second rate hike in 2011.
One of the main reasons for this interest rate hike is related to the ongoing rising inflation: in June 2011 the annual inflation rate reached 2.7% in annual terms, which is above the ECB's 2011 annual target inflation of 2%.
The chart above clearly shows that since mid-2009 there has been an upward trend in inflation rate after the interest rate reached a low level of 1%. Since then, the inflation started to rise. It also shows that in the last several months the inflation settled near the 2.7-2.8%.
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