A clear signal needed from the ECB

Ciaran O'Hagan, fixed income strategist at the investment bank Société Générale, calls in the Financial Times for a clear signal from the European Central Bank: "The 25 basis-point rise in interest rates ... is nothing more than a token move. It will do little to calm expectations of yet more inflation over the summer. It will also have little impact on the economic outlook. ... A sharp reduction in western consumption would ease the destabilising impact of the commodity price shock on developing countries and is environmentally friendly. Such considerations do not concern the monetary authorities. The onus is rather on western governments to support policies that favour both macroeconomic and geo­political stability. Yet the ECB cannot stand idly by and engage in wishful thinking. Luckily, investors currently see the ECB's inflation-fighting credentials as credible. ... There is now a window of opportunity for the ECB to reinforce that credibility and raise rates by far more than the market expects. It should not be allowed to pass."

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