European interest rates continue to rise

March 11, 2006

At their March 2 meeting, the European Central Bank raised the prime lending rate 25 basis points, to 2.5%

What It Means:
The Bank raised rates for the second time in three months to head off inflation, which was 2.3% and above their inflation target of 2%. Although many experts are concerned that recent European GDP growth of 1.2% for Q4 2005 is sluggish, the Central Bank sees many signs that growth is robust, including growth in the housing market. The Bank is more concerned with removing excess liquidity, and raising rates to a sustainable 3%.

Action Steps:
This action is another step in the direction of a higher value for the Euro, and a vote of confidence in the European economy. Review your European portion of your portfolio, and consider taking some profits from your U.S. holdings and investing them in a European mutual fund.