SHAME on you Mr. Trichet – waiting is the wrong thing to do

FRANKFURT — The European Central Bank, while keeping its key rate steady on Thursday, signaled its next move would be a rate cut despite inflation running well above the bank’s goal — a major shift in response to the financial-market upheaval’s toll on the economy.

The ECB’s mandate is to keep prices steady — unlike the U.S. Federal Reserve, which is also tasked with supporting growth. But ECB President Jean-Claude Trichet said that policy makers discussed cutting rates immediately.

[Jean Claude Trichet] Reuters

European Central Bank President Jean-Claude Trichet addressed the media in Frankfurt after announcing that the ECB will leave interest rates unchanged.

The ECB, which makes monetary policy for the 15-nation euro zone, concluded that “we were right to maintain rates as they are, but I confirm there were two options,” Mr. Trichet said. The admission shows the bank’s depth of concern about the health of the euro-zone economy, second in size only to the U.S. A rate cut would be the ECB’s first since June 2003; the Fed, on the other hand, has dropped its rate over the past year.

“This was really a very decisive shift in their stance,” says Marco Annunziata, chief economist at UniCredit in London. On Thursday he predicted a quarter-percentage-point cut at the ECB’s next rate-setting meeting, in November — instead of the second quarter of next year he had previously predicted. “I think it shows that they have been shocked by the recent developments, both on the macro front and in the financial sector.”

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~ by behindthematrix on October 8, 2008.

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