IT is a sobering thought that, even after all the central bank wailing and gnashing about inflation, the European Central Bank (ECB) has yet to increase the official deposit rate from the negative 50 basis points it’s been stuck at for almost three years. When policy makers meet later this month, they should follow the example of peers elsewhere by implementing a half-point hike.
ECB president Christine Lagarde’s new mantra of gradualism, optionality and flexibility seems to have missed out the action bit. Her oft-repeated desire to raise rates initially by just 25 basis points at the July 21 governing council meeting is starting to look like a potential policy error. By being so prescriptive, the central bank is, in fact, reducing its flexibility.