Will we get a rate reduction? Not if the ECB does it’s job we won’t.

I have seen articles in the news and economists from large lending institutions are saying they believe we will see two rate reductions in 2008. There are various reasons being put forward for this, and personally I would be delighted to see this happen, however, the flip-side is that if the ECB drop rates then to a degree they will just undermine their own credibility. Why? Because the ECB are not there to save the market just because there is a credit crisis, they were willing to inject liquidity in order to ensure that credit kept flowing, but in the area of Base Rates their only tenet is to control inflation at ‘near or just below 2%‘.

Rate reductions are inflationary, more money starts to move about the economy and there is an upward movement on prices, at the moment inflation is already above the stated target so cutting rates would only exacerbate that, if we get a …

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Will we get a rate reduction? Not if the ECB does it's job we won't.

I have seen articles in the news and economists from large lending institutions are saying they believe we will see two rate reductions in 2008. There are various reasons being put forward for this, and personally I would be delighted to see this happen, however, the flip-side is that if the ECB drop rates then to a degree they will just undermine their own credibility. Why? Because the ECB are not there to save the market just because there is a credit crisis, they were willing to inject liquidity in order to ensure that credit kept flowing, but in the area of Base Rates their only tenet is to control inflation at ‘near or just below 2%‘.

Rate reductions are inflationary, more money starts to move about the economy and there is an upward movement on prices, at the moment inflation is already above the stated target so cutting rates would only exacerbate that, if we get a …

Read More