European Central Bank to raise base interest rates
After many years, the European Central Bank should start raising its base interest rates. Its deposit rate is still set at -0.5 percent, and is expected to remain slightly below zero even after Thursday’s “hike”.
However, Thursday’s ECB meeting will be in the investors’ sights for another reason. The central bank of the eurozone should introduce a tool to provide relief to the southern EU countries, especially Italy, where interest rates on government debt are starting to rise. Investors already perceive a growing risk in their ability to repay some debts and so naturally demand a higher yield.
Government debt could rise
Moreover, if the ECB were to raise rates, the cost of government debt would rise even further. But investors expect the ECB to come up with a solution, so they are already betting on the euro against the dollar. The two currencies have recently reached parity, with the dollar and the euro trading at 1 to 1 for the first time in almost 20 years.
