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05 June 2007

EZA 794 Report: ECB Observer




ECB 6 June Council Preview


'REFI' RISE OF 25 BP, TO 4%, WIDELY SEEN FOR 6 JUNE, AS MARKETS CONTINUE TO CATCH UP WITH EZA VIEW OF 4 1/2% BY END-2007, EVEN 4.3/4% BY EARLY 2008

·As Trichet has long signalled, 25 bp hike in 'refi' rate a near certainty for 6 June, with more rises likely to come as balance tips further towards medium-term inflation risks.

·GDP growth still exceeding trend, propped by renewed domestic demand in 2007 Q1, with confidence indicators and projections (and likely Staff forecasts) suggesting more to come.

·Inflation stuck at 1.9% but likely to rise in coming months, with fading base effects and foreign commodity and domestic producer prices now feeding through.

·Money, liquidity and credit growth showing signs of abating in response to interest rate rises but still remain uncomfortably rapid.

·Financial markets and analysts still catching up with EZA's long-held view that the 'refi' rate likely to reach 4 1/4%-4 1/2% by end-2007, and now perhaps 4 3/4% in early 2008.



© Graham Bishop

Documents associated with this article

EZA794.pdf


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