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Official European Central Bank increases refi rate to 1.50%

Jones Lang LaSalle reaction to second rate tightening

London, 7 July 2011 – As widely expected, the Governing Council of the European Central Bank (ECB) today raised the main refinancing (refi) rate by 25 bps to 1.50 percent, its second hike in official rates this year.

Grant Fitzner, Head of EMEA Research at Jones Lang LaSalle, commented: “Although today’s increase was expected, the challenge now for the ECB is whether it should continue to steadily tighten rates while other major central banks, such as the Federal Reserve and Bank of England, are content to leave official rates unchanged at historical lows.”

“President Trichet softened the Bank’s hawkish rhetoric at today’s press conference, noting that its monetary policy stance “remains accommodative”, but “uncertainty remains elevated”. With core inflation steady at 1.5 percent, business and consumer price expectations easing, and a broad-based slowdown in Euro area growth, there is now a strong case for an ECB rates pause.”

“With a gradual tightening in Euro area rates widely anticipated, today’s move will have minimal impact on European property markets. After a solid recovery in 2010, the European commercial real estate market posted further improvements in gross returns in H1 2011, reflecting lower yields and higher rentals. There is scope for more modest gains in selected markets in the second half of the year.”

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