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December 08, 2005
The ECB -- Not So Fast
At least some members of the European Central Bank's governing council don't want you to conclude that their most recent rate hike was the last one. From Bloomberg:
European Central Bank council member John Hurley said the bank hasn't decided on the future course of interest rates in the dozen euro nations after last week lifting borrowing costs for the first time in five years.
"The governing council has not taken any `ex ante' decision to engage in a series of interest rate increases,'' Hurley said today in a speech at the Federal Reserve Bank of Philadelphia. ``It will continue to monitor all developments closely.''...
ECB chief economist Otmar Issing today suggested the bank hasn't finished raising rates. Issing said the bank is ready to act "whenever we see a threat to price stability.''
And from Reuters:
Lorenzo Bini Smaghi, ECB Executive Board, said the ECB's quarter percentage point rate hike last week, its first in five years, was designed to mop up extra cash in the euro zone.
"We are not entering a tightening cycle. We are just taking away excessive liquidity," Bini Smaghi told reporters after delivering a speech in Berlin.
But he roiled financial markets earlier by saying that the rate hike to 2.25 percent was not the full cure for inflationary dangers in the euro zone, while Bundesbank President Axel Weber said price risks remain even after the Dec. 1 credit tightening, which was smaller than he considered feasible.
"I will not conceal that I could have thoroughly imagined a somewhat stronger normalisation of the interest rate level," Weber told a German newspaper.
The plot thickens.
December 8, 2005 in Europe | Permalink
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Comments
Posted by:
The Prudent Investor |
December 09, 2005 at 05:00 AM
%20headquarters.%20ECB%20policymakers%20said%20on%20Thursday%20the%20bank%20had%20no%20plans%20for%20a%20string%20of%20interest%20rate%20increases,%20although%20it%20remained%20poised%20to%20tighten%20credit%20again%20if%20inflation%20pressures%20threatened.%20REUTERS/c){kind=link}
Good old hawk Issing. Unfortunately he is not a member of the rate setting governing council. Flying over the list of governors I can determine only two hawks, Germany's Weber and Austria's Liebscher. The rest are doves in the palms of their governments, all confronted with growing budget deficits, high unemployment and stagnating growth rates around the statistical error.
I think the ECB plays a dangerous game by not following its own rules which mandate it to keep inflation below 2% and M3 growth at 4%. Inflation is now above that and M3 more than double the target rate.
The easy money so far has only fuelled a (waning) property boom in some countries of the Eurozone, but capital investments can't be spotted on a wide scale. As it is not as easy as in the UK and the US to extract home equity due to tighter mortgage standards consumers are lining up in the banks for (more expensive) adjustable rate consumer loans.
The ECB has failed, especially in the light of changes to the contry-specific baskets of goods that HICP (our CPI) is calculated from.
2 years ago it took 2 days do get delivery of a gold bar in a High Street bank in Austria, last week a relative of mine was offered bullion investments and metals accounts have moved up on the client advisors cheat sheets.
No authority can mask the facts about inflation forever and oil back above $60 (and the $ higher as well) speaks a blunt language.