25bp hike by the ECB on euro area house prices

The European Central Bank raised interest rates on 3 July 2008 by 25bps to 4.25%.

This was not a complete surprise given that during the press conference that accompanied the June policy-making meeting, President Trichet said "We will, in our next meeting, not exclude the possibility of increasing rates by a small amount. That is the situation which we are in: it is not certain, it is possible."

Prior to this statement, the financial markets were not fully pricing in a 25bp increase in rates till March 2009; in the morning prior to the ECB decision, the markets were fully pricing in a move by August and put an 87% likelihood of a hike that day.

The principal reason the ECB raised interest rates is because it believes the balance of risks surrounding the medium term inflation outlook is skewed to the upside.

Download the RICS Economic Team's report on the ECB decision, from the PDF panel on the right hand side.