Thursday, Dec 07, 2006

ECB raises rates

BBC: Eurozone interest rate up to 3.5%

The key eurozone interest rate has been raised to 3.5% as the European Central Bank (ECB) keeps a close rein on inflation.

Posted by holding out @ 12:53 PM (2868 views)
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1. bidin'matime said...

Sounds good to me.

Thursday, December 7, 2006 01:32PM Report Comment

2. paul said...

And yet Mervyn holds UK rates, fearful of killing the sacred cow holding up the economy.

Thursday, December 7, 2006 01:42PM Report Comment

3. monty said...

Jeez Paul, you make that sound like a bad thing.

Thursday, December 7, 2006 02:05PM Report Comment

4. Surfgatinho said...

Bad news for Ireland!!!

Thursday, December 7, 2006 02:11PM Report Comment

5. tyrellcorporation said...

Astonishing difference in central bank attitudes to inflation. ECB are ramping up rates even when their inflation measure is below their ceiling figure of 2%. BoE/MPC are happy to keep rates on hold when their measure is breached by 20% or more!!!

Easy to tell which economy is structually unsound and built on a credit mountain.

Thursday, December 7, 2006 02:50PM Report Comment

6. Bubbles. . . said...

Tyrell agree completely..How foolish and how long can they spin this web of deceit..How long is a piece of elastic? Or is it the length continues until one day its streched too far and has to go ping......Trouble is it might take us all with it. Isnt it better not to know the truth?MPC, Boe, Gordon keep stretching ....Credit is still easy to come by for Governments that have never defaulted on borrowing. There rating is A+++, and with all the receipts they are getting through Stamp Duty, Fuel Duty rise, Death taxes. Oh and the pension steal of a few billion they can easily afford the repayments to carry on the borrowing and the feel good factor just print more money its easy..LMAO!!

Thursday, December 7, 2006 03:20PM Report Comment

7. Bubbles. . . said...

LOL such a complete lack of thinking from Boe..

Thursday, December 7, 2006 03:24PM Report Comment

8. monty said...

Just because I enjoy repeating myself I'll say it again. If you're chasing an inflation target 1-2 years down the line then it is a nonsense to look at today's inflation rate and attempt to relate that to today's interest rates. There will be no correlation and making such observations is useless. What do you think the lag is? Just how long do you think it takes for an interest rate change to affect the inflation rate? A week, a month?

If you want to look at unsound credit mountains then look no further than the Italians who have been issuing government debt like there is no tomorrow. Last time I looked they were issuing twice as much as anyone else in Europe. Wikipedia shows that their financial liabilities as a percentage of GDP stand at 120% whereas the UK is a mere 42%. Good thing the ECB keeps its members on such a tight reign, isn't it?

Thursday, December 7, 2006 04:02PM Report Comment

9. Boarder said...

> Wikipedia shows that their financial liabilities as a percentage of GDP stand at 120% whereas the UK is a mere 42%

CPS analysis of UK PS Debt is 103% of GDP when contigent liabilities of PFI Public and Local Gov pensions and Network Rail added. This equates to 53470 per household.

Thursday, December 7, 2006 04:20PM Report Comment

10. Membrane said...

so if they look 2 years ahead,whenever the current (made up) inflation rate seems to be heading down they cut rates immediatley hmmmmmmmmmmmmmmmmmm

Thursday, December 7, 2006 05:07PM Report Comment

11. paul said...

monty, you're missing crucial oversight, and being very naiive.

What on earth were the BofE doing 2 years ago, such that inflation is now above 20% above target?

The idea that current interest rates don't have an impact on current inflation is baloney and more the fool you are for taking it in.

To put it another way, if interest rates go up today, do you really think I'm going to ignore it and take out a huge loan tomorrow?

The interest rate DOES have a very quick impact on inflation. Only thye Bank of England wants you not to believe that as a poor excuse for inaction.

Thursday, December 7, 2006 05:47PM Report Comment

12. Ozzmosiz said...

Banks normally change the borrowing and savings rates within a month. Surely the amount of available credit has an impact!

Thursday, December 7, 2006 08:43PM Report Comment

13. Enuii said...

While most people and journalists have got heir heads firmly stuck in the proverbial bucket of sand Gordon and Mervyn can get away with it. It will tack a third as yet unrevealed factor to tip the house of cards. There is also another good old saying of 'what a web we weave when we try to deceive' fortunately or unfortunately whichever way the look at it for Gordon the Money Spider nothing has give his web a good old poke yet!

Thursday, December 7, 2006 10:03PM Report Comment

14. monty said...

"What on earth were the BofE doing 2 years ago"

Raising interest rates - on 5 Feb 2004 to 4%, 6 May to 4.25%, 10 Jun to 4.5% and 5 Aug to 4.75%
Mmmm, yes, that looks like so much inaction to me. Sorry that didn't bring about the HPC you've been holding out for Paul. Keep hanging in there, you just never know or maybe you do. Hey, if your crystal ball is so obviously better than theirs and you clearly know more than they do so why not apply for the job?

Bank of England
Threadneedle Street
London EC2R 8AH

I'm not saying their policies and decisions are perfect or above reproach and intellectually honest debate but there are better and more rational reasons for their decisions other than "they're all stooges in the pockets of the VIs presiding over Gordie's corrupt economy." They have a brief and are sticking to it. I'm assuming that brief doesn't include bringing about an HPC for your benefit. We can argue whether a target CPI of 1-3% as set by Gordie is a reasonable thing to do or if RPI including debt repayments and taxes would be a better metric but that'll keep for another day.

Thursday, December 7, 2006 10:50PM Report Comment

15. Nohpc said...

Tyrell you would make a good spin doctor. I like that you say the BoE is 20% over it's inflation target. I know this is the case but it sounds so much worse than the 0.4% they are above it. This language is similar to the that used by drug companies when trying to make their drugs seem more effective than they are. By using this sort of mathematic jiggery you are as bad as the VIs

Friday, December 8, 2006 05:50AM Report Comment

16. paul said...

You've just invalidated your argument monty, by tacitly admitting my assertion that interest rates have an very immediate impact on spending and borrowing (or choosing not to return a better argument), you're invalidating the Bank of England's claim that they are working to a two year window. This notion of working to a two year window is a recently invented excuse for inaction, not an idea rooted in any macroeconomic fundamentals.

I'm not interested in moving jobs right now - sorry.

It is the city's opinion, not mine, that Gordon's "economic miracle" has a) nothing to do with his policies and b) built on borrowed time and borrowed money (4 trillion of it!!!) and c) cannot continue.

I don't care if there's a house price crash, and haven't for some time. Think of this though - if Japan had had a house price crash all those years ago, maybe they wouldn't have had a twenty-year recession with many many bank failures.

You think the UK is immune? Why do you think all the Japanese banks in the city don't go near property portfolios?

A house price crash and recovery is the most optimistic scenario. At this rate, the UK is probably heading for something much more damaging.

Friday, December 8, 2006 01:23PM Report Comment

17. monty said...


If you scroll up you'll see that my objections are to comparing today's interest rate with today's inflation rate and not today's spending and borrowing. Yes, borrowing and spending affect inflation but it is quite obviously not immediate. The prices at your local BMW dealership do not go up the day after you MEWed because Merv dropped rates at midday. No-one asks for a wage increase the day they put the bread price up. That would be absurd, wouldn't it?

The notion of a lag effect is not, as you put it, "a recently invented excuse for inaction." It is the subject of a paper written by Milton Friedman (may he rest in peace) in 1961 titled "The Lag in Effect of Monetary Policy".

Nope, I do not think that the UK is immune to HPC which is why I hang around this forum. I believe that there is a risk of HPC which I don't view as a desirable outcome but then neither is a 20 year recession.

I still think you should try for that job at the BoE. Your ability to take on Noble Prize winning economists should prove useful. :-)

Friday, December 8, 2006 03:26PM Report Comment

18. paul said...

That lag is referring to the peak effect of an interest rate cut. It is being used as a flag of convenience by the Bank of England though, because interest rate rise effects are much quicker in practice due to expectations. Have a look at Tables 2 and 3 of the BofE's Friedmann Revisited Discussion:

Have you thought of working as their PR specialist? If you say it long and loud enough people might just believe it ...

Friday, December 8, 2006 04:18PM Report Comment

19. Nohpc said...

I strongly agree with monty here. Paul you are seeing things way too black and white. But then again you are the guy that thinks its a good idea to put all your money into a savings account and pay tax on all the interest you make. People like you would love a houseprice crash because you become rich over night as many homeowners did during the property boom so your view is completely biased and lop sided.

Friday, December 8, 2006 10:44PM Report Comment

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