July 7, 2011
The European Central Bank likes to prepare the ground for its interest-rate moves. “Strong vigilance” is the preferred code for signalling a rate rise, and Jean-Claude Trichet, the bank’s president, had been deploying the term of late. So the surprise on July 7th would have been if the ECB had held its fire. Instead it followed its own signal and pushed up its main policy rate, from 1.25% to 1.5%.
The rise was the ECB's second this year. The first move had been in April—after being signalled in March—when the bank raised the main rate from 1%, the low it reached during the great recession, in May 2009 (see chart). The rate increase put the ECB still further ahead of the game among the central banks of the largest advanced economies. In America the Federal Reserve has only just ended QE2, its second bout of “quantitative easing” in which money is injected into the economy through asset purchases. In Britain, where the Bank of England kept the base rate at 0.5% on July 7th as predicted, expectations of rate rises this year have evaporated. Indeed, judging by the minutes of the monetary-policy committee’s meeting in June, there seems to be growing support among its nine members for a second round of QE if growth sags.
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