Tuesday, 20 October 2015

ECB next step

Is the European Central Bank about to make a move?

China’s economy is now as big as the US economy, and with its currency loosely fixed to the dollar, it is directly impacted by Federal policy, and forward guidance is much more important than the current rate setting.

A hurdle that central banks have to experience is raising interest rates from an extended period at zero [or very low], so they will have to learn through practice, without a full understanding of how economies and markets may respond.

The effect is stronger in the US, but the need for monetary stimulus is much greater in Europe. The problem is that Chinese growth is slowing and it is shifting toward consumer goods and services, which are mostly produced within China.

So what is the ECB's next step?

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