ECB Council Post-Meeting Assessment.
·As foreseen, ECB's key interest rates left unchanged on 2 November, but 25 bp increase clearly signalled as almost done deal for 7 December.
·Trichet raises storm signals: strong vigilance of the essence, progressive withdrawal of monetary accommodation still warranted', acting in a firm and timely manner still essential.
·Trichet sidesteps hostages to fortune on policy moves in 2007, but ECB view of continuing robust economic growth at or above potential, tighter labour market conditions, inflation still seen averaging above 2%, further acceleration of M3 growth and continuing rapid private sector credit and liquidity growth, all point to need for further policy tightening in 2007.
·Subject to any (unexpected) wholesale revisions to Eurosystem/ECB Staff's December macro projections, EZA sees ECB 'refi' rate hitting 3 3/4% in 2007 Q1 and, in contrast to markets who see maximum 3 3/4%, quite likely set to rise to mildly restrictive 4 1/4%-4 1/2% by end-2007.
© Graham Bishop
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