Friday, 3 May 2013

The latest move from the ECB

The European Central Bank's 0.25% cut in its main lending rate, to 0.5%, and its restated commitment to open-tap funding of the Eurozone's banks, come as no surprise after the latest statistics from Eurostat. The Eurozone's unemployment rate rose a bit further in March, to 12.1%, while inflation had eased in April, to 1.2%. This left the door widen open for a cut, though apparently (if the report in the May 2 edition of the FT is correct) at least one member wasn't in favour of a cut.

What's more surprising, to me, is how long it's taken for inflation to reflect the depressed state of activity in the Eurozone. As recently as January, inflation was still tracking along at 2% - high for a region running hugely below capacity. It's a reminder of that old 'Eurosclerosis' - the lack of flexibility in the Eurozone's product and labour markets.

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