ECB holds interest rates at 4%

[Skin]

From Ireland.com:

• The European Central Bank kept its benchmark interest rate at 4 per cent today, in line with market expectations.
  
  ECB President Jean-Claude Trichet signalled at the start of August that another rate increase was likely. But a sharp tightening in euro money market conditions since the ECB 's last meeting on August 2nd had convinced analysts that it would postpone the rise.
  
  The ECB also held its marginal lending rate, at which banks can get emergency overnight loans, steady at 5.00 per cent and maintained its deposit rate at 3.00 per cent.
  
  Some money market traders had speculated that the ECB might cut its marginal rate, following the US Fed's example, to put a cap on interbank lending rates, which surged past 4.5 per cent yesterday.

Good news for homeowners, bad news for homebuyers?

[ibis]

That depends on whether you think a downward move in house prices is entirely dictated by interest rates, I suppose. If it isn't, then it's good news for both.

[Skin]

True, I cant see this preventing further declines in house prices. i think the sentiment is that the bottom of the decline is house prices has not yet been reached.

[Steerpike]

It's ironic that the current credit crisis was caused by reckless lending and borrowing - surely an argument for making borrowing more expensive. Irish property inflation has been accentuated by the same recklessness in an investor-saturated market.

However, I don't think that ECB leaving rates unchanged today will halt the property slowdown, especially as they haven't ruled out further rises in the future.

[feargach]

It's ironic that the current credit crisis was caused by reckless lending and borrowing - surely an argument for making borrowing more expensive.

They tried that in 1929 after a similar credit-led crash.

The results were not as glowing as were hoped.

[LTGuy]

I think it is a temporary relief, as ECB will screw the bolts again as soon as October if markets calm down. If they don't EURIBOR will be sky-high even without ECB raising rates. Yesterday overnight rate was 4.68 - so it is not relevant if ECB made the base rate 4.25 - the rate on the ground is much higher under current conditions. What people with variable mortgage rate care about is 3/6/12 months' Euribor, not overnight rate set by ECB. I see no reason for those go down any time soon, unless ECB cuts the base rate unexpectedly.

[Ponzi]

Growth in the money supply as measured by the M3 metric is at a 25 year high. The target is growth of 4.5% pa, actual is around 12%. I wonder what the lads in Frankfurt are thinking at the moment?


http://www.fxstreet.com/news/forex-n...c-c2dadf74b6c6

[LTGuy]

Growth in the money supply as measured by the M3 metric is at a 25 year high.

I have been wondering if there are no issue with measuring M3 involved. M3 has skyrocketed (at least this is what they say) - with no effect on inflation. Either monetary theory principles need to be revised or there is some gross mistake measuring M3 involved, as I fail to see where all that money is going. In England M3 is growing to the tune of 15% per annum - you should see the effect of that wall of money somewhere...

[Ponzi]

Growth in the money supply as measured by the M3 metric is at a 25 year high.

I have been wondering if there are no issue with measuring M3 involved. M3 has skyrocketed (at least this is what they say) - with no effect on inflation. Either monetary theory principles need to be revised or there is some gross mistake measuring M3 involved, as I fail to see where all that money is going. In England M3 is growing to the tune of 15% per annum - you should see the effect of that wall of money somewhere...

Inflation as measured by CPI (or whatever measure is in vogue now)possibly doesnt reflect money supply growth. Much of the supply may be going into assets eg property that growth not showing up in CPI. Velocity of money may have an influence and the deflationary impact of Chinese imports might play a role?

[Ard-Taoiseach]

Growth in the money supply as measured by the M3 metric is at a 25 year high.

I have been wondering if there are no issue with measuring M3 involved. M3 has skyrocketed (at least this is what they say) - with no effect on inflation. Either monetary theory principles need to be revised or there is some gross mistake measuring M3 involved, as I fail to see where all that money is going. In England M3 is growing to the tune of 15% per annum - you should see the effect of that wall of money somewhere...

I share your view about M3 supply. You'd think that rises of this level would have pushed inflation above the 2% target in the €urozone sometime over the past year? It hasn't so far, inflation has remained below 2% for 12 of the past 12 months, so the ECB can chillax about M3 supply.