LONDON: European Central Bank (ECB) president Mario Draghi faces a trickier-than-usual balancing act at this week’s meeting to set monetary policy. Lurking at the back of his mind may well be the memory of the last time his institution tried to change course – with embarrassing results.
On April 7, 2011, the ECB raised its benchmark refinancing rate to 1.25% from 1%. After slashing borrowing costs to record lows during the credit crisis, central banks were keen to normalise interest rates. The ECB, though, jumped the gun. Before the year was out, it had to perform an embarrassing reversal.