Thursday, 5 June 2008

Interest Rates Up in July Possible

"European Central Bank President Jean- Claude Trichet said policy makers may raise interest rates as soon as July after increasing the inflation forecast for this year and next.

'It's not excluded that, after having carefully examined the situation, that we could decide to move our rates for a small amount at our next meeting,' said Trichet at a press conference in Frankfurt after the ECB left its benchmark rate at 4 percent. 'I don't say it's certain. I said it's possible.'

I wonder why they have to wait until July to increase interest rates, after all the mandate of the ECB is to keep inflation rate below and near 2%. They are clearly failing their mandate as inflation is running at almost 4% (well for the folks in their Ivory tower, for the normal people back on earth, inflation is running at over 7% or more).

They will argue that it's because of oil and food price shock, and will make a cocker face, and say that they can't do anything about it. Hummm Can't they? where this high oil consumption is happening? whom they sell massively? Europe...

Indeed Europe has been in a consumption binge in the past 5 years as banks open they door and gave money as some give seeds to the pigeons. Now the ECB got to increase the debt servicing in order to slow banks to lend like mad. Borrowing cost need to be increased in order to calm down they materialistic behaviour and stop them from running massive debt (which is much bigger than the level reached in the late 80's!)

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