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05 February 2006

EZA 737 Briefing note: ECB Observer




ECB 4 May Council Preview
NO RATE RISE FORESEEN THIS THURSDAY BUT 25 bp PROBABLE IN JUNE, WITH MORE HIKES TO 3.25% BY END 2006, AND 3.75% BY MID-2007 LIKELY ·Rise in ECB interest rates most unlikely Thursday, 4 May, but strong expectation of a rate increase - probably by 25 bp, to 2.75% - in June; ·Balance of evidence over past month has tilted even more firmly in the direction of upside risks to price stability and away from downside risks to growth; ·'Headline' inflation rate bounces back up to 2.4% in April amid growing signs of rising inflation expectations and feed-through of high oil and other commodity prices to non-energy domestic prices, increasing the risk of second-round effects; ·Continuing accelerating of monetary and credit growth and ever-increasing liquidity overhang will further stoke up ECB's inflation worries; ·Reinforces EZA's view that series of further rate hikes likely to take the ECB's main refinancing rate to 3.25% by end-2006 and 3.75% by mid-2007.

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© EZA


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