Monetary policy: Passive aggression

The ECB’s biggest-ever cut looks timid WHEN the economy is sinking and inflation fading rapidly, is there any merit in cutting interest rates gradually? On December 4th the Bank of England again opted for boldness. It cut its benchmark rate by a percentage point, to 2%, following a stunning one-and-a-half-point reduction a month earlier. On the same day Sweden’s central bank slashed its rate, from 3.75% to 2%, and said big cuts were needed because monetary policy was less effective than usual. But the European Central Bank (ECB) was stuck somewhere between caution and boldness. Less than an hour after the Bank of England’s decision, the ECB reduced its main rate by three-quarters of a percentage point, to 2.5%. That was the biggest cut in its ten-year history. It may look daring, but in the circumstances seems inadequate. One reason for the Bank of England’s haste is that the British economy, with its housing bust and exposure to financial services, is falling fast. Yet the ... (link)