http://www.economist.com/blogs/freeexchange/2014/02/european-central-bank?zid=295&ah=0bca374e65f2354d553956ea65f756e0
Inflation in the Euro-zone was surprisingly low in January, falling from 0.8% to 0.7%, rather than rising to 0.9% as was expected. This caused a flurry of speculation of continual fall in interest rates, causing many to expect the European Central Bank to respond promptly during meeting of the ECB's governing council on Feb 6th. Many expected the ECB to possibly loosen its monetary policy (lowering interest rates) since it was supposed to reach a target inflation rate of just below 2%.
Although the ECB did not taken any further action in response to the fallen inflation rate, the ECB had already lowered its' lending rate in November from 0.5% to 0.25%.
I think that the action of ECB is right. Setting a target inflation rate and lowering ECB's lending rate can cause inflation. However, they clearly have to print money more. In case of Japan, when Japan was suffer from long deflation. Many ecnomists discussed about how to cause inflation. They attepmted to use a lot of policies, but one of the most effective actions is just printing money. The answer is clear. ECB have to print money.
ReplyDeleteThe ECB is in trouble if it is unable to react the target inflation rate of 2%. It is interesting that after they already lowered the interest rate, inflation still has not been able to increase, printing money will help increase inflation, but I'm not sure if this tactic will be the most effective in this situation.
ReplyDeleteIt is currently very difficult for the euro-zone to find a highly effective way to raise the inflation rate due to the different situations of other economies. For example, Germany currently sits at an inflation rate of approximately 1.3% while Greece is experiencing an inflation rate in the negatives. It also doesn't help that those in Germany are weary on raising inflation. With their past experiences with hyperinflation, the fear of history repeating itself has been a big issue for them.
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