In the wake of the Fed’s decision on Wednesday to go ahead with $600 billion in quantitative easing, the European Central Bank and the Bank of England’s Monetary Policy Committee both announced Thursday to leave their interest rates unchanged. The ECB’s divergence from the Fed’s policy reflects, according to a Wall Street Journal report, a permanent assessment of what can be done to bolster the economy.
The ECB had been so widely expected to leave the 1% rate alone that the bond markets did not react to its announcement, according to a Reuters report. The dollar, on the other hand, fell after the Fed’s announcement as the euro hit a nine-month high in response to belief that the ECB will continue to withdraw stimulus measures. Criticism of the U.S. policy was implicit in ECB President Jean-Claude Trichet’s comment at a news conference that it “isn’t a normal situation” for financial institutions to depend on extraordinary ECB funding.
The Bank of England, though, may possibly follow the U.S. lead in QE should the British economy prove more fractious in the wake of its decision to leave its interest rate untouched. Its interest rate, at 0.5%, has been unchanged since March of 2009, and MarketWatch reported that the vote by the committee on whether to employ QE was divided. The British pound also rose against the dollar after the interest rate announcement.