The ECB does a very quick about-face on its interest rates analysis.
Raising rates was a mistake as I have said multiple times on this blog. The ECB is staging something of a coup here. Re-prioritization of the specific ECB mandate against inflation (and inflation alone) is no small matter.
Still, no-one will complain. Between the rock of high exchange rates destroying foreign demand for European goods and the periphery PIGS falling into recession, growth and the lack thereof, is the only thing that matters.
Euro bank's hawks take a pounding
By Ambrose Evans-Pritchard
Last Updated: 10:40pm BST 07/08/2008
Collapsing growth in Germany, Italy and Spain has forced the European
Central Bank to abandon its hawkish policy stance, preparing the way for
likely rate cuts in coming months.
Jean-Claude Trichet, the ECB's president, said yesterday that the picture
had darkened over recent months and growth was now "particularly weak"
across the eurozone. "We knew that there were downside risks, and those
risks are materialising," he said after a meeting by the governing council
that left rates on hold at 4.25pc.
The comments caused the euro to plummet by almost two cents against the
dollar to $1.5310 yesterday. Traders scrambled to unwind bets on future rate
"The ECB has capitulated on the economic outlook," said Julian Callow,
Europe economist at Barclays Capital.
"They have cut out all reference to 'moderate ongoing growth' and no longer
seem sure that the economy will recover even in the fourth quarter. I detect
meaningful concern," he said.