The Interest Rate in Europe may be kept low because of the Dubai Crisis

The members of the ECB’s Observatori, a committee of experts, believe that its necessary to keep the interest rate at 1% and will say it in the meeting that will be hold tomorrow.

However, there isn’t consensus on the way the emergency measures taken because of the crisis should be lifted, the committee believes that the support given to the banks should be gradually retreated.

The recent Crisis of Dubai, Whose government asked for a moratorium to pay part of the public company , Dubai World, triggered the divergence of opinions. ”the panic generated by Dubai is the best test to reach a conclusion about the financial crisis, this case mirrors a trust crisis that is far of being solved”

Explains José Luis Martinez, strategist in Spain of Citi ”’the Central Banks must continue spreading liquidity and adecuated credit conditions to normalizethe markets”,

added. Nowadays banks can get money at a low interest rate an lend it very expensive.

Jean Claude Trichet, president of the ECB will give details from the meeting of tomorrow about the quit strategy of the crisis, that will presumably include rises on the interest rate. Will also define the conditions of the next liquidity of one year auction, that will provably be the last.

The liquidity auctions are able to set the interest rate because people lends money according the cost they have to obtain new liquidity.For more information about how does this Machine grow, see The Interest Rate

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