30 January 2006

EZA 723: Briefing note: ECB Observer

ECB 2 Feb Council Preview
RATE RISE NOT EXPECTED THURSDAY BUT 25 bp LIKELY IN MARCH, WITH MORE TO COME BY END 2006 No rate rise likely on 2 February, only 3 weeks on from 12 January meeting. Limited amount of new information but lends support to ECB view that growth is still on track and heightened risks to price stability remain. Still no signs of significant pass-through or second-round effects from high energy prices but signs that inflation expectations may be drifting up and monetary developments unclear but not reassuring. 25 bp rate rise likely in March on the back of 'flash' GDP growth estimate for 2005 Q4 and ECB Staff macro forecast update. Even then, ECB will see policy as accommodative, so further two 25 bp or one 50 bp rate rise, to 3%, to be expected by end 2006.

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