The pre-announced interest rate rise that the European Central Bank is due to agree this Thursday must rank as one of the most bizarre monetary policy decisions of recent times. The economic recovery in the eurozone remains fragile, as last week’s German confidence indicators have shown. Even the ECB’s own forecast for headline inflation is relatively optimistic, while core inflation remained unchanged at 1.5 per cent in October.

As strange as this decision may be, it is not surprising. Jean-Claude Trichet, president of the ECB, has become progressively more hawkish in his recent public statements. While the ECB does not pursue strict monetary targets, it has a monetarist tradition. The strong growth of the money stock in recent months has presented the ECB’s governing council with a perfect opportunity to raise interest rates.