The Bank of England and the European Central Bank…
…understand what needs to be done.
Inflation is their main concern and that is a very welcomed point of view.
The Bank of England
The Bank of England’s Monetary Policy Committee kept rates on hold today at 5.25%. The MPC has lowered rates twice by 25 basis points (once in December and once in February) but their main focus is on inflation which is above the Banks comfort zone.
Inflation stands at 2.2% and continued price pressures on food and energy have resulted in the decision to keep rates steady despite a slowdown in the economy.
The MPC’s voting members understand that the economy is not able to sustain growth with high inflation and that in order to kick-start the economy inflation needs to be under control.
They also understand that a slowdown in the economy is required in order to contain inflation and inflationary pressures and to drive them out of the economic pipeline.
Once inflation is under control the MPC will be in a position to lower interest rates in order to aid the economy further. The biggest help the MPC can offer to the economy is to keep inflation under control.
The European Central Bank
The European Central Bank can be very proud as it currently has one of the top bankers (if not the best) on the planet who leads the bank…Jean Claude Trichet.
He is not only highly intelligent and has great knowledge of how the markets and the economy function but he is not afraid to stay the course despite intense pressures from governments to lower rates.
He understands that politicians (often in a desperate attempt to secure votes) have no idea about the economy as well as the markets and he reminds them to stay out of his business the same way he stays out of their business.
The ECB left rates unchanged at 4.0% for the eleventh meeting. The European Union is faced with a slowdown but inflation remains the ECB’s main concern for the same reason outlined above.
No economy will be able to accelerate and grow with high inflation and the biggest help any central bank is able to offer in order to boost the economy is to fight inflation and not to lower rates (as probably the dumbest banker of the planet…Ben Bernanke…does).
Both central banks, the Bank of England under the helm of Governor Mervyn King and the European Central Bank under the helm of President Jean Claude Trichet, have demonstrated that they deserve the position they hold and that they are fully qualified to handle any situation that will arise which drastically increases confidence in the central banks.
The greatest asset available to central banks in order to promote and assist economic growth and a strong currency is to fight inflation.
The Euro has hit another all-time high against the U.S. Dollar and exports from the EU continue to boom and expand despite the high currency which clearly shows that exports have nothing to do with the currency but with quality of the products exported. The ECB has demonstrated that a high currency and a strong export business can co-exist.
Maybe there should be a Trans-Atlantic Central Bank under the lead of Trichet with King as the Vice President.
We had ‘Another Great Day for Global Equity Markets…’
…but you only share that point of view if your portfolio was positioned on the right side of the equation.
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