27 February 2006

EZA 728: Briefing note: ECB Observer

ECB 2 March Council Preview
25 bp RATE RISE TO 2.5% EXPECTED THURSDAY, WITH TWO MORE 25 bp RISES, TO 3.0%, LIKELY BY END OF 2006 25 bp rise in ECB interest rates expected Thursday, 2 March. Economic and monetary evidence since December's hike not conclusive but on balance lends some further support to those who had wanted 50 bp then. Justification likely to be sticky inflation above 2%, buoyant confidence and new orders, growth and inflation forecast, fears of energy price feed-through and second-round effects, and need to pre-empt rise in inflation expectations. 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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© Graham Bishop