07 March 2005

EZA 666: ECB Assessment

ECB Post Meeting Assessment
Unsurprisingly, ECB interest rates stay on hold - unchanged now for almost 2 years. Stance still 'continued vigilance', with seeming slight tilt in short-term concern towards weak growth but tilt the other way, towards greater inflation fears, for medium term as .... ECB projects GDP growth momentum returning and inflation subsiding in 2005/06 but .... Monetary and other risks to price stability in medium term remain, or even more acute.

SummaryTrichet's remarks once again confirm us in our view that - barring further major oil price or exchange rate shocks or clear evidence of second-round inflation effects on wage-/price-setting or on inflation expectations - rates can be expected to remain on hold at least until Q4 2005 and probably into 2006 Q1, but by then the widening liquidity overhang and continuing credit growth, stimulated by historically low interest rates, could be the trigger for rate increases should GDP growth be seen to have returned close to trend.

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© Graham Bishop