The tide of global liquidity has begun to recede—finally.
The European Central Bank (ECB) on Thursday sprang no surprises when it said that it would raise its key policy rate by 25 basis points, the first rate hike since 2008. And it is expected to gradually make money costlier in the rest of the year.
The next stop: the US. The Fed is unlikely to hike interest rates right now, though the hawks in its policy body have raised the pitch. But the Fed could wind down its $600 billion programme of bond purchases—QE2 —by end-June.
Is the world economy finally out of trouble? Do not bank on it. The ECB decision came on a day when Portugal had to be bailed out. Greece, Spain and Ireland continue to totter. US jobs data does provide some reason for optimism, but there are still pressure points.
Economic growth is still weak even as inflation pressures are building up. It’s an awful combination.