COMMENT & ANALYSIS
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By Wolfgang Münchau
Published: March 6 2011 19:25 | Last updated: March 6 2011 19:25
If you take your inflation target seriously and literally, as the European Central Bank does, the decision to pre-announce an almost-certain rate increase is internally consistent. I had expected the ECB to raise its short-term refinance rate in June, but it is now aiming for April. This two-month gap has nothing to do with unexpected price developments. The decision to jump early is political. I am offering three reasons, and one speculation.
First, the decision counteracts concerns in Germany that the ECB is on the verge of opening the monetary floodgates should a non-German succeed Jean-Claude Trichet as president. As the German journalist Mark Schieritz, of Die Zeit, noted last week, the ECB took its decision on a day when Axel Weber, president of the Bundesbank, was absent. The ECB has thus signalled that it can be tough with or without a German central banker breathing down its neck. The ECB said louder and clearer than ever that it will do "whatever it takes" to keep annual inflation below 2 per cent.
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