The European Central Bank should not raise interest rates in its next meeting because it risks widening the gap between struggling periphery economies and the stronger ones at the center of the euro zone, economist Nouriel Roubini told CNBC Friday.
ECB President Jean-Claude Trichet said Thursday a rate hike in April was possible but not certain and revived the bank's old coded warning of monetary tightening by using the phrase "strong vigilance," often heard during the tightening cycle between 2005 and 2007.
"In my view that's a mistake … I think that the ECB is rushing too fast into hiking rates," Roubini said in an interview. (See video of full interview here).
Output in the periphery euro zone economies is still contracting and the ECB rate raise will lead to a strengthening of the euro that will further affect competitiveness in the area, he explained.
"I fear that Portugal is going to need an IMF and EU program … I think the biggest issue is going to be Spain, that is right now too big to fail but also too big to save," Roubini also said.
The monetary policy response to the rises in oil prices will be different in various parts of the world, he said.
There will be an acceleration of monetary tightening in some developing countries, while the Bank of England, which so far has remained on hold, might raise rates soon, according to Roubini.
The Federal Reserve is likely to remain on hold as it looks more at core inflation that excludes volatile food and oil prices, he added.
"It looks like the US Fed is still on hold, they're going to stay on hold for a little while," Roubini said.
He reiterated the view in a report by Roubini Global Economics that muni bond defaults will not exceed $100 billion and losses caused by these defaults will be even smaller, around $35 billion.