Monday, June 16, 2008

What' going on at the ECB? (os)

Two weeks ago, the European Central Bank (ECB) left her minimum bid rate at 4%. This was widely expected and accepted. Interesting about it was the "announcement" of an interest rate increase on their next term.

But what can we expect from this step? Is it a pre-emtive strike against upcoming inflation scares and secondary effects as a result of the latest oil price hike or is it the beginning of a new interest rate cycle? According to EZB staff, the goal is to create a better situation in terms of inflation and output for a time horizon of 1 1/2 to 2 years, especially due to the real interest rates, which in some european countries are quite close to zero.

This, again, brings the discussion on the table, whether the ECB should concentrate on the concept of core inflation, which is adjusted by oil/energy prices, or should she keep on watching the hcpi. Also it raises the question, if the fact of low real-interes rates in some EU countries is reason enough for the ECB to raise rates?