Thursday, December 20, 2007

Trichet Forced to Drop Focus on Inflation

ECB policy makers have kept their benchmark rate unchanged even as the collapse in assets backed by U.S. subprime mortgages makes banks reluctant to lend to each other. The central bank first offered extra cash on Aug. 9, when it lent 95 billion euros ($137 billion) of emergency funds. On Dec. 18, the ECB pumped a record 349 billion euros into the banking system. Trichet said the coming weeks may be ``challenging'' for investors.

``The ECB had a good start in addressing the problems in the money markets, but I think there's a risk of falling behind the curve on monetary policy,'' said Thomas Mayer, chief European economist at Deutsche Bank in London. ``I don't think this is a technical problem confined to the money markets.''

The Bank of England's Monetary Policy Committee this month backed a rate reduction in the first unanimous decision to cut since the Sept. 11, 2001, terrorist attacks, minutes of the Dec. 6 decision showed yesterday. Chairman Ben S. Bernanke and his team at the Fed have lowered their overnight rate three times since September, while the Bank of Canada unexpectedly trimmed its rate on Dec. 4.

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