Market Updates

ECB Raises Key Rate to 1.25%; Portugal Seeks EU Help

Arjun Dave
07 Apr, 2011
New York City

    European Central Bank lifted key lending rate to 1.25% from 1% and Bank of England left its benchmark rate unchanged. The increase in interest rate comes only hours after Portugal said it will seek European Union financial help.

[R]1:10 PM Frankfurt – European Central Bank lifted key lending rate to 1.25% from 1% and Bank of England left its benchmark rate unchanged. The increase in interest rate comes only hours after Portugal said it will seek European Union financial help.[/R]

European markets traded in a tight trading range before the rate decision from the European Central Bank.

The bank lifted the key rate to 1.25% from 1% and the Bank of England left interest rate on hold.

The central bank in Europe lifted the rate for the first time since July 2008. The increase in rate was widely expected after the ECB President Jean-Claude Trichet said inflation is ahead of bank’s comfort level and signaled that a rate hike is likely.

Inflation in the euro-zone in March was 2.6% ahead of 2% target set by the central bank.

DAX 30 index in Frankfurt traded down 4.41 to 7,211 and CAC 40 index increased 4.05 to 4,052.01.

In Lisbon, PSI 20 index gained as much as 1.4% after the Prime Minister Jose Socretes said in a televised speech that the country will seek European Union financial help to stem the widening financial crisis.

Portugal is expected to seek 90 billion euros of funds including the 10 billion euros that is needed before June.

The bailout package will need approval from three leading political parties and is expected to shrink government bureaucracy and trim social spending.

Portugal is the third country after Greece and Ireland to seek a European Union bailout and Spain, Italy and France are now in focus.

In economic news, Germany said industrial output increased 1.6% in February from the revised 2% increase in January monthly increase.

Stock Movers

Banks in Europe traded lower after the rate hike and several banks in Italy and Germany said they will seek capital infusion.

Commerzbank dropped 4% to 5.48 euros and Deutsche Bank added 2.4% to 42.93 euros.

In Paris, banks were higher before the rate decision. BNP Paribas increased 3% to 55.04 euros, Credit Agricole SA 2.8% to 11.94 euros added and Societe Generale advanced 2.7% to 47.84 euros.

Industrials traded mixed. MAN SE declined 1% to 90.28 euros and BMW fell 1.8% to 59.71 euros.

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