05 March 2005

EZA 677: ECB Council Preview

ECB Observer; rates on hold - even to early 2006 - but potential futures market overshoot
Inflation still 'sticky' but not far above (and 'core' inflation below) ECB's 'price stability' range Continuing upside risks from oil/commodity prices and excess liquidity Demand pressure very weak but ECB so far confident activity will revive EZA's central expectation still: rates on hold for many months yet Futures market comes into line with EZA view – but potential overshoot EZA alert to possible (low probability) market turmoil if French/Dutch vote 'No' to EU Constitution; also looking out for ECB's June macro projections

SummaryAGAIN NO RATE CHANGE SEEN THURSDAY, OR EVEN INTO EARLY 2006: UPSIDE INFLATION RISKS REMAIN BUT DEMAND PRESSURES SUBDUED

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