10 January 2006

EZA 719: Briefing note: ECB Observer

ECB 12 January Council Preview
RATE RISE NOT EXPECTED THURSDAY OR EVEN NEXT MONTH BUT 25 bp OR EVEN 50 bp EXPECTED MARCH/APRIL, WITH FURTHER RISE BY END 2006 Latest economic data do not point to a further rate rise this month. Indications of weaker activity in 2005 Q4 and some easing of monetary growth. Upside risks to inflation remain but still no signs of significant pass-through from energy prices to other prices, labour costs remain restrained and inflation expectations subside. 25 bp rate rise likely in March or April on the back of GDP growth estimate for 2005 Q4 and ECB Staff macro forecast update. 50 bp possible if inflation/expectations appreciably above 2%. Further rate rise, to 3%, expected by end 2006.

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© Graham Bishop