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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Real Man who wrote (88404)11/5/2007 5:06:22 AM
From: Haim R. Branisteanu  Read Replies (1) of 110194
 
Trichet May Jettison Rate Rise Even as Europe Inflation Surges

By Simon Kennedy and Ben Sills

Nov. 5 (Bloomberg) -- European prices are accelerating at the fastest rate in two years. Jean-Claude Trichet may abandon the European Central Bank's drive to raise interest rates anyway.

The ECB president, forced to pick sides within his divided governing council, is likely to support keeping the bank's main rate at 4 percent this week -- and probably for months to come, economists predict. If history is any guide, his next move may even be a rate reduction.

For now, the ECB's 19-member council, meeting in Frankfurt on Nov. 8, is in what David Brown of Bear Stearns International describes as a ``holding pattern.'' Inflation stands in the way of cutting rates, while weaker economic growth blocks the increase Trichet had intended as recently as two months ago.

``Downside risks have risen to such an extent that the ECB is now prevented from raising rates,'' says Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London. ``As the economy continues to disappoint, it'll start opening the door to a rate cut.''

Such a strategy would mean Trichet, 64, is betting that Europe's weakening economy and the euro's rise to a record against the dollar will ultimately haul inflation back into line. His room to maneuver is also limited by the U.S. Federal Reserve's rate cut last week, its second in two months.
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