Tuesday 16 January 2018

Interest rate cut is now needed

The worsening crisis has forced the ECB to abandon its plans to raise interest rates further.

The ECB has a record of putting up interest rates at precisely the wrong time. In July 2008 it insisted on raising interest rates. Two months later US investment bank Lehman Brothers went bust and the world as we knew it changed forever.

It would be fair to have assumed that, after getting it so disastrously wrong in 2008, the ECB's rate-raising instincts would have been at least blunted. No such luck. It went ahead and raised its official interest rate in April and again last month. And there was more to come with ECB president Jean-Claude Trichet making it clear that further interest rate increases were likely later this year and in 2012.

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