The European Central Bank has dramatically raised the stakes in its war of nerves with financial markets and governments. Since the credit crisis began last year, investors have bet that the combination of the crunch, the strength of the euro and the relative weakness in domestic eurozone demand would eventually force the ECB to cut rates. By contrast, the ECB has consistently argued that its primary, if not sole, concern was rising inflationary pressure, and that cutting rates is not on its agenda. Even though markets had already re-priced that expectation to the next move from the ECB being a hike, few really seemed to believe that this would be the case, until now. So the news that a rate hike at the next meeting is a real possibility, compounded by the revelation that some ECB voting members had pressed for a hike at the last meeting, still came as a shock to the markets.
展开▼
