Everyone expects the central bank increased its key interest rate Thursday for the first time since the crisis began. It should be fixed at 1.25% to fight against inflation in Europe. A gamble for Christophe Blot, économine European specialist at OFCE (French Office of Economic Conditions).
FRANCE 24 is the first time since the crisis began that the ECB will increase these rates, why?
Christophe Blot: Jean-Claude Trichet, president of the European Central Bank, has made clear it was time to fight against inflation in the euro area. Since the beginning of the year it is 2.4% while the target of the ECB is to maintain inflation at 2%.By increasing the policy rate by 0.25% even as it should be the case, Jean-Claude Trichet hopes to curb this trend.
This approach questionable because current inflation is due solely to rising oil prices and it is by definition a highly volatile indicator. If we remove the price of oil and food prices, also volatile, inflation is only 1%. By not taking this into account, the ECB adopts a reflection only in the short term, then it is supposed to reflect the medium-term.Also if you look abroad, particularly in the United States and Great Britain, central banks are not as stringent goals against inflation.
F24: The low rate was that of the ECB so far was supposed to promote growth in times of crisis. Does it increase suggests that the crisis is over by the central bank?
CB: You can ask. Indeed, another reason to raise the rate indicator is that the ECB has always believed that monetary policy before the crisis was too lax.She often said that with interest rates too low, the funds had flowed afloat and had encouraged the emergence of bubbles [real estate speculation] that played a role in triggering the crisis. So by raising rates, it is conceivable that the central bank believes it must now work to prevent future bubbles rather than supporting growth.
F24: Yet one can hardly say that Europe is growing ...
CB: It is indeed a matter of timing. I think the ECB is acting too soon. By increasing interest rates, banks will pay more to finance when the banking sector in Europe is still very fragile.Moreover, ultimately, the banks will raise rates at which they lend money, which will not improve purchasing power. If we add to that all plans rigorously determined in the countries of the euro area is a very risky bet that the ECB does. And all that while inflation is not that strong!
