For the first time since the 2008 financial crisis the European Central Bank raised interest rates but signaled it was not necessarily the start of a series of similar steps.
Jean-Claude Trichet the president of ECB used phrases at a news conference traditionally seen to be associated with further swift hikes. But he stressed that the band had not taken the decision which was taken on Thursday as the first in a series of moves. The financial market was surprised with that comment which was betting on the two further rises in rates before the end of this year.
It may certainly reflect the concern of the bank which jacks up the borrowing costs too fast and on the other hand, would harm the euro economies which are struggling with high debt. A day after Jose Socrates the Prime Minister of ECB relented and asked for aid, Trichet said that it had encouraged Portugal to request an international bailout. Trichet read out the post decision statement of the bank at a news conference and said that the stance of monetary policy remains accommodative and thereby continues to lend considerable support to job creation and economic activity.
He also said that they will continue to monitor all developments closely with respect to upside risks to price stability. The phrase “monitoring closely is said to be the sign of the ECB raised rates for two months. The Phrase “very closely” represents that it was in the cards for the next month. In recent year the term and the use of “very”: has lost its significance. Trichet when pressed on the outlook for the interest rates said that they did not decide till now that it was the first in a series of the increased interest rate. After those comments the euro fell further and there were some recent losses in the shorter dated euro zone debt.
The increase in the benchmark refinancing rate of the ECB marked a gentle exit from the policy response of the central bank to the global financial crisis which saw a record low of 1.0 percent since May 2008. The decision had been flagged by the ECB policymakers heavily in advance and all but some economist polls expected a 25 basis point rise last week. Nick Kounis the economist of the ABN Amro said that this makes the first major developed economy which is the central bank ECB to high rates. The reputation of the company will be cemented by the decision as a single minded inflation fighter.
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Category: Business/ Economy
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