'Monetary policy at the moment is roughly where it should be and I think the discussion about declining rates in Europe is premature,' Weber, 51, said in an interview in his office in Frankfurt yesterday. 'If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary.'
'we're not even sure that inflation on average will be below 2 percent in 2010,' Weber said.
'If inflation risks further materialize and if we come to the conclusion that the inflation outlook has deteriorated, we'll have to re-examine our monetary-policy stance,' he said. 'At the moment, this isn't an issue.'"
That comes as a shocker!...that defies what most economists and analysts have been forecasting...unless it's a bluff which will make Axel Weber a master poker player and ECB Trichet a chess master...
In that sense, I kind of agree with Dr. Weber with this approach. You just have to go back in history to see that policy mistakes have been made since often they underestimated the strength of the economy thinking that it was weakening too much and lowered iterest rates to only fuel inflation and exarcerbate current "bubbles".
In 1987, there was a massive stock market crash - 20% down for the dow jones in one day in the U.S. , interest rates were cut to only fuel an asset bubble worldwide.
In 1997, there was the Asian crisis that had its own banking crisis and asset deflation. They cut interest rates to only fuel what was the biggest Technology bubble in history.
Some investors are asking the ECB to cut interest rates , they are trying to push for a policy mistakes as greedy investors always profit massively during time of high volatility and asset bust.
On the other hand what would be the consequence if interest rates were to go to 5% or higher...maybe massive defaulting for those who have been borrowing on variable interest rates which represents about 90% of the Finnish lending...