Moin,
It is possible that Mr. Trichet was using rhetoric to achieve his ends, as a stronger euro will make oil cheaper for Europeans to import.
habe heute bekommen -
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In fragile recovery, a storm of rising prices
KEVIN CARMICHAEL
WASHINGTON— From Friday's Globe and Mail
Published Thursday, Mar. 03, 2011 8:00AM EST
Last updated Thursday, Mar. 03, 2011 8:09PM EST
The European Central Bank is breaking with its closest allies over inflation, warning that surging oil and food prices could force it to raise interest rates as early as next month.
Stunning investors and market analysts, ECB president Jean-Claude Trichet said in Frankfurt Thursday that an “increase of interest rates in the next meeting is possible,” a remarkably direct comment from a central banker who more often shrouds his commentary with a bit of mystery.The shift by the ECB highlights the precarious situation in which most policy makers find themselves as they try to time the reversal of the extraordinary stimulus unleashed to combat the financial crisis. Inflationary pressures clearly are building, but the global economic recovery is far from entrenched.
Mr. Trichet’s stance stirred controversy about whether Europe’s fragile economy is ready to absorb higher interest rates. His position also opens a gap with his counterparts in Britain, Canada and the United States, all of whom said this week that they think the recent jump in commodity prices will have only a temporary effect on consumer prices.
The significance of that fissure immediately reverberated through foreign exchange markets. The value of the euro began a sharp climb as Mr. Trichet spoke, beginning an ascent that put the currency more than 0.9 per cent higher against the U.S. dollar.
Traders rushed to buy the euro, betting interest rates in Europe were heading higher, unlike in the United States, where most expect the Federal Reserve to leave borrowing costs unchanged until next year. Before Thursday, most market participants had anticipated the ECB’s policy-setting committee to leave borrowing costs unchanged until the summer.
“The Governing Council’s main message today was unambiguous: expect a 25-basis rate hike next month,” James Ashley, senior European economist at Royal Bank of Canada, advised his clients in a note after Mr. Trichet spoke.
Mr. Trichet signalled his intention to move toward a more natural policy setting even though European financial markets remain unsettled over the debts of countries such as Portugal and Ireland. Economic growth will be crimped as Britain, France and other countries initiate austerity plans, and unemployment is elevated.
“The bank appears eager to prove its inflation-fighting credentials,” Benjamin Reitzes, a Toronto-based economist at BMO Nesbitt Burns, said in a commentary. “A rate hike is a risky move.”
The question is whether the European economy can handle higher borrowing rates. The ECB last raised rates in July of 2008, just as the financial crisis was about to knock the global economy into its deepest recession since the Second World War. That forced policy makers into a series of unprecedented rate cuts.
Some analysts fear a repeat of that mistake.
“We have agued that a rate hike now would be a policy error, with fiscal tightening, a fragile banking system, and the continued concerns over sovereign credit all likely to contribute to slower growth,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.
So far, the ECB is just talking about moving against inflation, as policy makers opted to leave their benchmark lending rate unchanged at 1 per cent on Thursday. It is possible that Mr. Trichet was using rhetoric to achieve his ends, as a stronger euro will make oil cheaper for Europeans to import.Nevertheless, many analysts predicted the ECB is serious about jumping ahead of the Bank of England and the Fed in rubbing out inflation before it has a chance to take hold. Mr. Trichet said he wants to avoid “second-round effects,” a term economists use to describe the spread of higher commodity prices to the cost of consumer goods and demands for higher wages.
The ECB said it would maintain “strong vigilance” against price increases, language Mr. Trichet tends to use to signal his intention to tighten monetary policy. In the statement on its policy deliberations, the ECB also declined to say whether it considers current policy to be “appropriate,” another hint that analysts took to mean higher interest rates are in the offing.
“The ECB has already decided to hike rates at its next meeting in April,” declared Jonathan Loynes, an economist at London-based Capital Economics. Mr. Loynes predicted a quarter-point increase next month and then again in July. Mr. Ashley at Royal Bank said he thinks the ECB will lift its benchmark rate a quarter point each quarter for the next year.
European policy makers would justify higher borrowing costs with evidence of stronger growth. The ECB revised its forecast for euro zone economic growth to 1.7 per cent this year from a previous estimate of 1.4 per cent. Inflation will average 2.3 per cent in 2011, the ECB said, up from a December estimate of 1.8 per cent and faster than the central bank’s target of about 2 per cent.
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http://www.theglobeandmail.com/report-on-business/.../article1928048/ |
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