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I think it's more likely rates will start creeping up - probably by a point or two to give the impression that something is happening.

When tradition dictates that rates must go up, up they'll go.

This will make no sense and will be a bad thing, but the monetarists only have tradition to draw on. Expecting anything else is equivalent to expecting them to innovate, which isn't something central banks are good at.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat May 31st, 2008 at 07:13:29 AM EST
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As usual, they could control the money supply by increasing reserve requirements instead of rising interest rates, thus constraining new credit but without driving existing debtors over the edge.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Sat May 31st, 2008 at 08:13:35 AM EST
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Four out of six members of the executive board are from mediterranean countries now, and these countries generally prefer a weak euro and, currently, low interest rates to stimulate growth (as I said, I disagree with both sides at this time).

I expect that national policy will trump ideology, so the German/Dutch/Austrian hardline policy and the Mediterranean demand for lower interest rates should cancel each other out. It's not a naive scenario - it's what's been happening so far this year.

by nanne (zwaerdenmaecker@gmail.com) on Sat May 31st, 2008 at 08:24:34 AM EST
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