(Bloomberg Gadfly) -- European Central Bank President Mario Draghi faces a trickier-than-usual balancing act at this week's meeting to set monetary policy. Lurking at the back of his mind may well be the memory of the last time his institution tried to change course -- with embarrassing results.
On April 7, 2011, the ECB raised its benchmark refinancing rate to 1.25 percent from 1 percent. After slashing borrowing costs to record lows during the credit crisis, central banks were keen to normalize interest rates. The ECB, though, jumped the gun. Before the year was out, it had to perform an embarrassing reversal.
At the time of that rate increase -- the first in almost three years -- crude oil prices had soared almost 40 percent in the previous six months. The consensus among economists was that the ECB would hike twice more in 2011, pushing the benchmark rate to 1.75 percent, expectations many policy makers encouraged.
With inflation overshooting its target, the ECB tightened policy before either the Federal Reserve or the Bank of England. The move came before the nascent euro zone recovery had put down firm roots -- the European Commission was predicting growth would slow in 2011 to 1.6 percent from 1.8 percent the previous year.
What forced the ECB's hasty reversal, however, was the rapidly unfolding sovereign debt crisis that saw yields on Greek and Portuguese bonds climb to records on concern that the weaker members of the euro might get pushed out of the common currency.
As things stand now, inflation has accelerated, but remains sufficiently below target not to be kindling any expectations for a change in policy.
Nevertheless, an increasingly robust growth backdrop is stoking calls from Draghi's more hawkish colleagues, notably the Bundesbank's Jens Weidmann, to adjust the ECB's forward guidance.
Now, the most anyone is expecting from this week's meeting is a tweaking of the wording of the ensuing press release to remove any reference to a future lowering of rates, and to acknowledge that downside risks have dissipated.
Even that, though, may meet resistance from ECB doves who recall what happened six years ago. They should overcome their inhibitions.
The ECB has already scaled back its bond buying (although it also extended the life of the program, something Draghi tried to sell as maintaining the status quo). While any increase in borrowing costs is still months away, the euro zone economy has sufficiently recovered for central bankers to start signaling that the patient will eventually be unhooked from life support. It's too soon to taper; but not to soon to start entertaining the notion.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”