The ECB’s decision-makers need to understand the context, make sound choices from among the alternatives and communicate appropriately. Ms Lagarde will do this extremely clearly. Internal criticism, resignations, partisan leaks to the press… Divisions within the ECB seem to have flared up in recent weeks. Strangely, there’s sometimes more politics going on inside a central bank than in governments.
The second hike came in conjunction with the government’s announcement of expenditure cuts, and sought to prevent contamination of inflation expectations from currency depreciation, as well as to contribute to stronger macroeconomic fundamentals. Trust gained over years of consistent endeavor, however, can be lost in an instant. Mexico has an unprecedented opportunity to consolidate convergence to the inflation target, given unusually subdued price pressures.