ECB cuts a ‘risky’ strategy: Swedish expert

Following the news that the European Central Bank unexpectedly cut its prime interest rate, Swedish experts are questioning the strategy.

SEB chief economist Robert Bergqvist told news agency TT that he thought the ECB strategy was risky.

“The consequence could be a lack of trust,” he told TT.

According to Bergqvist, the decision to cut rates sooner than expected could be interpreted as the ECB trying to control a constitutional crisis and therefore departing from its original mandate; to control inflation.

The decision followed the first meeting of new ECB head Mario Draghi and the market had not expected he would dare cut the rates so soon.

“But now he really shows that he he is able to take action,” said Carl Hammer, chief currency strategist at Swedish bank SEB to daily Svenska Dagbladet (SvD).

The majority of analysts had expected that the rate would stay at 1.50 percent, according to the paper.

“Everyone was hanging on to the idea that this was Draghi’s first interest meeting. But really, that was the only argument not to cut rates. It shouldn’t be so unexpected considering the state of European finances,” Hammer told the paper.

Berqvist also said that many had expected the rates to be cut, but later this year.

He is concerned that there will be consequences if the Riksbank will agree to the ECB judgement that growth and inflation is about to fall back significantly.

“Then the Riksbank will be under pressure, maybe not to cut rates but to rethink the planned increases,” he said to TT.

As soon as the news broke, the Swedish stockmarket rose by almost 2 percent. At the same time the euro fell against both the krona and the dollar.

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