06 March 2006

EZA 729: Briefing note: ECB Observer

ECB Council Post-meeting Assessment, March 2006
Announcing 25 bp rise in ECB's 'refi' rate, to 2.5%, Trichet says monetary policy remains accommodative and interest rates very low, with risks to price stability still on the upside. Stresses Governing Council's mind-set the same as after December's 25 bp rise: no decision to embark on series of rate rises, no unconditional commitment, but would do whatever necessary on basis of facts to ensure price stability/anchor expectations. Governing Council's view that economic activity is improving, consumption set to strengthen, inflation likely to remain above 2% for some time, is supported by latest Staff macro projections revising up 2006 and 2007 GDP growth and inflation figures. Demographic trends reinforce urgent need for fiscal consolidation, structural reforms. ECB endorses ECOFIN's recommendation that Jürgen Stark join Executive Board.

SummaryEZA Conclusion: Reinforces EZA's view that ECB envisages further policy tightening likely to be needed later this year but scale and timing to be determined in light of each monthly assessment of accumulated data on growth, prices, inflation/expectations and monetary developments. We continue to expect two further 25 bp increases to 3% this year, probably in June or July and in December, and see a possibility of two further 25 bp rises or one terminal 50 bp hike, to 3.5%, by mid-2007.

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© Graham Bishop