17 January 2005

EZA 654: ECB Council Post Meeting Assessment January 2005

ECB Council Post Meeting Assessment
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SummaryAs widely expected, no change in interest rates. Stance remains 'continued vigilance' but we detect further slight shift away from short-term inflation worries. Governing Council more comfortable, with balance of concerns now broadly neutral and upside risks to inflation and downside risks to growth now seen as less acute. ECB still confident that recovery will continue and inflation subside this year and next. Liquidity overhang still indicates inflation risk, but now further ahead. Sharp rises in euro are 'unwelcome and undesirable for economic growth'. EZA Conclusion: Confirms us in our view that - barring further major oil price or exchange rate shocks or clear evidence of second-round inflation effects - rates are likely remain on hold at least until Q4 2005 and quite possibly into 2006.

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© Graham Bishop