They are pretending. They do not have a clue.

The European Central Bank has cut interest rates from 0.25% to 0.15% to stimulate the European economy. Seems meaningless. Does it matter whether you get 25 paise or 15 paise interest on Rs 100? This is unfair on savers who are losing money because the rate of inflation is 0.5%. The ECB wants to force people to spend money by making savings unattractive and by making it cheap to borrow money. The reason is that the ECB is in a state of pure funk. Inflation has fallen to 0.5% and there is a real possibility of deflation as has been going on in Japan for over a decade. In desperation the Bank of Japan is buying bonds up to $350 billion a year to increase money supply, targeting an inflation rate of 2%. The Federal Reserve in the US was buying bonds and mortgage backed securities of $85 billion every month in a program known as Quantitative easing. To force banks to lend more to people and businesses the ECB is going to charge banks 0.1% for funds parked with it by banks. ECB President, Mario Draghi said," Are we finished? The answer is no. If need be, within our mandate, we aren't finished." He is saying that but his hands are tied by Germany which is the biggest economy in the Eurozone. Germans blame the hyperinflation in the 1920s for the rise of the Nazi party, the defeat in the war that followed and the resultant division of the country. Germany has imposed austerity on countries that were in debt resulting in severe contraction of economy and painful unemployment. Unemployment level in Greece was 23.8% in March 2014 but the rate among 15-24 year old was an unbearable 58.3%. An entire generation is going to lose out unless the ECB is able to stimulate the economy sufficiently to generate more jobs. The British have also imposed austerity by cutting benefits for the disadvantaged and have generated a boom in house prices by helping buyers. The British should learn from India. The Congress has left us with a huge property price bubble which has increased black money in the system, stoked inflation and made people poorer by increasing rents. Already first time buyers find it impossible to enter the housing market in Britain. While the ECB and Britain are imposing austerity the US and Japan are injecting vast sums into their banks. Ideally all central banks should be formulating a joint policy so that all countries benefit from it but central banks are constrained by their political masters to produce quick results to win elections. Unilateral changes by these large banks may produce massive currency flows which would cause a big headache for the RBI. They use big words, trying to sound clever but no one has a clue. Scary isn't it?