ECB rates - where next?

[plant43]

Does anyone have any comment on what the papers said today that with the impending recession in the US that the ECB and the Fed will be forced to "agressively cut interest rates"?

[Sunny]

Originally Posted by plant43

Does anyone have any comment on what the papers said today that with the impending recession in the US that the ECB and the Fed will be forced to "agressively cut interest rates"?

I think the Fed will cut today or at next weeks meeting. But probably today. I think the ECB will have no choice no matter what inflation does but to cut rates. Probably will leave itas late as possible so looking at Q3 or Q4. At the moment, I expect a 50bp drop by year end. Bank Of England will cut rates at the next meeting as well.

There are rumours that the central banks are planning a co-ordinated rate cut today but that to me would just add to the panic

[ivuernis]

Fed just cut 0.75%

[yoganmahew]

Originally Posted by Sunny

I think the Fed will cut today or at next weeks meeting. But probably today. I think the ECB will have no choice no matter what inflation does but to cut rates. Probably will leave itas late as possible so looking at Q3 or Q4. At the moment, I expect a 50bp drop by year end. Bank Of England will cut rates at the next meeting as well.

There are rumours that the central banks are planning a co-ordinated rate cut today but that to me would just add to the panic

Congrats on you first prediction - here's hoping your last one doesn't come true. Otherwise, I'll be buying tinned baked beans futures!

[corkfella]

I think it would be wise for the ecb to consider lowering rates by a 1/4 point sooner rather than later(q1), personally I think they can be very stubborn and are slow to lower rates just because the u.s and u.k are doing it, they need to concentrate on protectibg growth as I feel their inflationary fears will fizzle out soon.

[Sunny]

Originally Posted by yoganmahew

Congrats on you first prediction - here's hoping your last one doesn't come true. Otherwise, I'll be buying tinned baked beans futures!

To be honest, the 75bp surprised me. Was expecting 50bp. I think the FED has just admitted to the market that they were right. The US is in the crapper! There is talk of another cut at next weeks meeting. I think the ECB will be praying that the FED has just done them a massive favour and rescues the US economy and therefore the Eurozone without them having to resort to rate cuts but I have my doubts and think it too late. We will see what the reaction is after the bounce!

[Sunny]

Originally Posted by corkfella

I think it would be wise for the ecb to consider lowering rates by a 1/4 point sooner rather than later(q1), personally I think they can be very stubborn and are slow to lower rates just because the u.s and u.k are doing it, they need to concentrate on protectibg growth as I feel their inflationary fears will fizzle out soon.

I think there is a very strong possibility of that.

[Thomas22]

Originally Posted by corkfella

I think it would be wise for the ecb to consider lowering rates by a 1/4 point sooner rather than later(q1), personally I think they can be very stubborn and are slow to lower rates just because the u.s and u.k are doing it, they need to concentrate on protectibg growth as I feel their inflationary fears will fizzle out soon.

But the ECB only has a single mandate, fighting inflation. With inflation at 3.1% they have very little room to maneuver.

[corkfella]

Originally Posted by Thomas22

But the ECB only has a single mandate, fighting inflation. With inflation at 3.1% they have very little room to maneuver.

thats fair enough but a major cause of inflation is the price of oil which is now under 90 dollars for the 1st time in a while and could fall further with poor economic reports from the u.s.

[ivuernis]

Originally Posted by Thomas22

But the ECB only has a single mandate, fighting inflation. With inflation at 3.1% they have very little room to maneuver.

Price stability is the primary objective, not the sole objective of the ECB.

[Sunny]

Originally Posted by ivuernis

Price stability is the primary objective, not the sole objective of the ECB.

Exactly. Otherwise rates would be alot higher than 4% at the moment if their only concern was fighting inflation at the expense of everything else.

[Purple]

Is the price of oil as much a reflection of the weakness of the dollar as it is the demand for oil based products?

[corkfella]

Originally Posted by Purple

Is the price of oil as much a reflection of the weakness of the dollar as it is the demand for oil based products?

not really the dollar has been hovering close to 1.50 against the euro for the best part of 6 monthes now while the price of oil peaked to 100 sollars. "if" the u.s actually slips into recession the demand for oil will go down and so will the price. Also china's huge oil appetitie will slow as a lot of china's economy is on the back of exports to america.

[Purple]

Originally Posted by corkfella

not really the dollar has been hovering close to 1.50 against the euro for the best part of 6 monthes now while the price of oil peaked to 100 sollars. "if" the u.s actually slips into recession the demand for oil will go down and so will the price. Also china's huge oil appetitie will slow as a lot of china's economy is on the back of exports to america.

Ok, but if oil is priced against gold then it's not that high. My point is that commodity prices in general have gone up and the increase in the price of oil is in line with the general trend (or commodity super cycle). This trend looks like it will end with a bang this year and so will much of the inflationary pressure that goes with it. In this context and in the context of an overall slowdown in world economic activity the ECB can reduce interest rates to stimulate economic activity without worrying about inflation.
I’m open to correction but basically if the USA goes into recession (with all the effects that will have around the world) then we won’t have to worry about inflation.

[corkfella]

Originally Posted by Purple

Ok, but if oil is priced against gold then it's not that high. My point is that commodity prices in general have gone up and the increase in the price of oil is in line with the general trend (or commodity super cycle). This trend looks like it will end with a bang this year and so will much of the inflationary pressure that goes with it. In this context and in the context of an overall slowdown in world economic activity the ECB can reduce interest rates to stimulate economic activity without worrying about inflation.
I’m open to correction but basically if the USA goes into recession (with all the effects that will have around the world) then we won’t have to worry about inflation.

I completly agree with you, inflation is no longer going to be a concern if the u.s goes into recession. the fed's move yesterday was a lit bit panicky but welcomed by most experts, the u.k may cut soon as well but for some reason the ecb still seem to think that inflation is more of a concern than economic growth.

[corkfella]

looks like trichet is staying through to form....sarkozy will not be happy....

European Central Bank president Jean-Claude Trichet has said economic growth in the euro zone could be lower than previously expected due to the current world financial crisis.
Mr Trichet told the European Parliament that although the ECB was sticking with its forecast for 2% growth this year, risks to this figure were growing.
He also stressed the importance of keeping inflation. The remarks dampened hopes that the ECB would follow the US Federal Reserve in cutting interest rates.
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'In all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations,' he said.
With euro zone inflation running at its highest in over six years, the European Central Bank had previously raised the prospect of raising its interest rates to keep prices under control.

[qwertyuiop]

Originally Posted by Purple

My point is that commodity prices in general have gone up and the increase in the price of oil is in line with the general trend (or commodity super cycle). This trend looks like it will end with a bang this year

WHat makes you say that?

[Howitzer]

Originally Posted by corkfella

I completly agree with you, inflation is no longer going to be a concern if the u.s goes into recession. the fed's move yesterday was a lit bit panicky but welcomed by most experts, the u.k may cut soon as well but for some reason the ecb still seem to think that inflation is more of a concern than economic growth.

I guess because in the Eurozone it is.

Just cause every 2 bit Irish banking economist was sprawled across todays press saying the ECB has to do this or that doesn't mean anything, in fact given their appalling collective record over the last 2 years I wouldn't give their opinions a jot of credibility.

[Sunny]

Originally Posted by corkfella

but for some reason the ecb still seem to think that inflation is more of a concern than economic growth.

They were going on about it again this morning. I think the market has stopped listening though.

[Purple]

Originally Posted by qwertyuiop

WHat makes you say that?

The pending (current?) recession in the USA, the corresponding drop in demand for commodities that this will cause and the knock on effect that this will cause in the markets.