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Foreign Exchange

Have Trichet and Co missed a trick?

With the notable exception of the Fed, central bankers around the world seem overly concerned with the threat of inflation

With the notable exception of the Fed, central bankers around the world seem overly concerned with the threat of inflation rather than the damage that maintaining rates at too high a level will do to fragile economies. The ECB in particular, while laudable for its independence, still has a Germanic paranoia about inflation which appears to be about to bite it very much on the backside.

I’ll leave it to BNP Paribas to express far more eloquently (and subtly) than I could how stupid it was to recently hike euro rates. “Spanish manufacturing production has declined by 9.5% year-on-year in June while German orders have collapsed by 2.9% month-on-month and 6.1%. year-on-year. May data were revised lower. The German economy has contracted by 1% in Q2 and the eurozone’s Q2 growth rate may be flat at best. In light of the imploding order flow, the July ECB rate hike looks increasingly like a policy mistake in need of being urgently reversed.”

Bernanke 1, Trichet 2

June 06, 2008


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