The Portuguese caretaker Prime Minister Jose Socrates asked the EU for financial assistance on Wednesday the third European country to require a bail-out. It is expected to be discussed by EU finance Ministers in Budapest. The big concern is whether this is the end or will Spain be next.
Yesterday the European Central Bank (ECB) increased by 25 base points’ interest rates from the record low of 1% to 1.25%. Jean – Claude Trichet said the decision was a “balancing act” as concern that the decision would widen debt problems with Portugal, Ireland and Greece. The Euro has continued to gain strength against sterling following the interest increase and Sterling is currently trading around 1.1380 on the market.
The Bank of Japan held interest rates at 0% – 0.1% overnight as they advised that the Japanese economy is “under strong downward pressure” following the devastation of the earthquake and tsunami.
China’s Central Bank increased its interest rates by a further 25 base points earlier in the week to try and curb inflation. This is the fourth time the Central Bank has increased interest rates in the past year, showing the concern they have for what they see as an imported inflation with fuel cost etc.
The minutes from the March meeting of the Federal Reserve Bank revealed that policy makers differed on how to tackle the future monetary policy. Some feel that they should be tightening conditions before the end of this year. The major concern at this moment in time is the ability to agree the budget to avoid services grinding to a halt.
Commentary by Douglas Palmer
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