Is an ECB Rate Hike Really Possible?
Up until the very end of 2007, ECB President Trichet reminded the markets that the central bank is hawkish and will do all that it takes to make sure there is no second round inflation effects. He also clarified that their desire to contain inflation will not be distracted by the interest rate cuts from the UK and the US. As a central bank that focuses heavily on price stability, the fact that inflation has breached their 2 percent target in the second half of the year raised red flags. Since then, they have done nothing but threaten the markets with higher interest rates. Yet, the last time the ECB raised rates was in June, leading many people to wonder whether they are all talk and no action. In fact, even though they haven?t touched interest rates, their massive liquidity injections suggest that at the moment their actions favor looser monetary policy. In early December, 3 month Euro LIBOR rates hit 6 year highs while sterling 1 month LIBOR rates hit 9 year highs. When the rates ref
