MacroScope

Is the ECB driven by pride?

February 9, 2009

All the G7 countries outside the euro zone now have interest rates of 1 percent or less, prompting some grumbling in various financial quarters that the European Central Bank is being particularly stubborn in keeping its rates at 2 percent.

Now comes an interesting take on this from JPMorgan Asset Management which suggests the gap may have more to do with egg on the face than monetary policy. 

“There is a school of thought,” it writes in a new note “that the ECB has been in a state of denial ever since it decided to raise rates last July.  An organisational behaviourist would observe a desire to preserve ‘face’ in the deliberate way by which the central bank has reversed its previous tightening stance.”

Whether this is the case or not, it does not bode well for European equities or the euro itself, the firm says, arguing that equities are further away from being upgraded than U.S. stocks as one result of the higher rates.  As for the euro , JPMorgan AM says there is plenty of scope for it to be punished.

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