Friday, April 08, 2011

ECB Raises Rates, Global Monetary Policy Divergences Magnifies

The European Central Bank lifted policy rates yesterday.

From the Bloomberg, (bold highlights mine)

European Central Bank lifted interest rates for the first time in almost three years to quell inflation even as Portugal became the third nation to succumb to the region’s sovereign debt crisis.

ECB policy makers meeting in Frankfurt today raised the benchmark interest rate to 1.25 percent from a record low of 1 percent, as predicted by all 57 economists in a Bloomberg News survey. It also raised the marginal lending rate to 2 percent from 1.75 percent and increased the deposit rate to 0.5 percent from 0.25 percent, maintaining 75 basis-point corridors either side of the benchmark....

The ECB is joining China, India, Poland and Sweden in raising interest rates even as the Federal Reserve remains reluctant to tighten amid divisions among its policy makers.

Today’s ECB rate increase is the first since July 2008 and also the first time in 40 years that Europe’s benchmark has risen before the U.S. equivalent.

The ECB has repeatedly been forced to delay the withdrawal of emergency policy settings put in place during the global financial crisis as Europe’s debt woes threatened to tear the 17-nation currency bloc apart.

The ECB has raised rates alright but continues to pump money into the system.

From the same article,

The ECB has also said it will keep providing banks with as much liquidity as they need at least through the second quarter, and has left its bond-purchase program in place.

So we revert to the proverbial, ‘the left hand doesn’t seem to know the right hand is doing’.

Well this just underscores the vast monetary policy divergences across the globe highlighted by this fantastic interactive chart by the Wall Street Journal Blog.

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Proceed to the Wall Street Journal Blog to see original interactive chart.

Bottom line: Great deal of countries are still at ultra-accommodative phases (which provides fuel to commodity inflation)

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