Update: The ECB has now announced that it will leave rates unchanged for another month. This in my view is a mistake, essentially putting off the inevitable for another month – unless, that is, Trichet has info that tomorrow’s US employment numbers will be much better than expected. If not this is only going to lead to more upward pressure on the euro over the month, and a further month’s delay in offering stimulus to an overly lethargic euroland economy. I don’t buy the rapid-recovery-round-the-corner, ever-present-inflation-danger scenario.
While most observers look anxiously over to Frankfurt to see what they will finally decide, it might be worth just noting that Sweden has lowered its interest base rate. The current 2% rate is now the lowest in a century:
The Swedish Central bank cut its key interest rate by 50 basis points to 2 per cent on Thursday, its lowest level for a century, reflecting low inflation and rising unemployment in the Nordic region’s largest economy.
In a statement the central bank said the recent decline in inflation had been “greater than anticipated,” partly due to unexpectedly low import prices but also to a weaker labour market.
I am highlighting this decision lest those of you with wicked minds have come to the conclusion that I only take note of events which confirm my preoccupations about the viability of the euro. Sweden of course voted to stay out of the euro.
In fact as I reported on Bonoboland last month:
Compared with February 2003, all the Member States registered a decrease in their annual inflation rates. The biggest relative falls were in Sweden (3.3% to 0.2%), Finland (2.1% to 0.4%) and Denmark (2.9% to 0.7%)
Two of the three countries with a marked drop in inflation are not in the euro. So clearly having control of your own monetary policy is not the be-all and end-all of the problem. You also have to get the decisions right. Now let’s see if Sweden has been bold enough with today’s move.