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11 February 2008

EZA 830 Report: ECB Observer




ECB 7 February Council Post-Meeting Assessment


· ECB kept its key rates unchanged on 7 February, as expected, but dropped its tightening bias and moved to a neutral stance, with no discussion of raising or lowering rates.

· Strong hints that 2.0% GDP growth projection for 2008 will be revised down in March and heightened uncertainty about overall impact of financial market's reappraisal of risk, but economic fundamentals remain sound and domestic and external demand still expected to support growth.

· Temporary inflation 'hump' seen as protracted, with continuing concern about risks of a wage-price spiral, but last month's "prepared to act pre-emptively" dropped.

· Vigorous money and credit growth still point to upside inflation risks over the medium to longer term.


EZA Conclusion: The Governing Council remains in wait-and-see mode, given continuing uncertainties about financial market developments and the extent that increased risk-aversion might impact on growth, but the move to a neutral stance does not appear to be preparation for a cut in rates in the near term. Barring accidents on the growth or inflation fronts, we see rates staying on hold through into the second half of 2008.



© EZA

Documents associated with this article

EZA830.pdf


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