Category Archives: Uncategorized

Draghi cuts and markets flip

Last week marked the second time where new President of the European Central Bank, Mario Draghi, governed an interest-rate decision for the Euro area. And for the second time it was and interest rate cut, implying an interest rate on main refinancing operations of 1.00% effective from 14 December. This ties the lowest level in Euro history, which was effective from 13 May 2009 to 13 April 2011. So, loosely speaking the interest rate is back at the financial crisis level. The decision makes sense given the economic outlook for the Euro area: A continuation of high unemployment and absence of inflationary pressures. It was, however, not a unanimous decision. … Continue reading

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Unemployment goes down and ECB raises policy rate

Today, the ECB raised its policy rate by 0.25 percentage point to 1.25%. This came hardly as a surprise, given the various statements from ECB officials in recent weeks. Many commentators have motivated this by the increasing HICP inflation. However, I would argue that there are other just as applicable, if not better, reasons. Namely that economic activity is picking up, and unemployment is crawling down. Indeed, in the press release following the rate increase, Governor Trichet states Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the fourth quarter of 2010, recent statistical … Continue reading

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