Thursday, April 12, 2007

Confused markets (fg)

Today, ECB left interest rates unchanged at 3.75%. Trichet pointed out in his introductory statement that new information in the economic and monetary analysis confirmed the last interest-rate hike in March. According to Trichet euro-zone monetary policy still is on the accomodative side with robust real GDP growth and inflation on the upside risk. However, the ECB president again stressed dynamics in moneary aggregates and its counterparts. As I stressed earlier on this blog, M3 growth and its major counterpart loans to private sector increased furhter last month indicating to ambiguous developments between the two pillars. Again, the ECB is unfortunate when trying to communicate in a consistent way. Either the Governing Council should take monetary developments seriously or it should dismiss this second pillar to give markets clear signals and information about upside or downside risks to inflation. Otherwise, Trichet will be again and again confronted with his ambiguous statements on press conferences by market participants. See for example the latest questions and answers.