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30 September 2008

EZA 863 Report: ECB Observer




ECB 2 October Council Preview


NO RATE CHANGE SEEN THURSDAY. RATE CUT END-2008/EARLY 2009 LIKELY,

BUT RATE HIKE NOT YET RULED OUT AS COST PRESSURES STILL FEED THROUGH

· No rate move foreseen Thursday, next move likely modest cut but ECB expected to keep its nerve and sit on its hands until end-2008 or 2009 Q1, but rate hike not yet ruled out.

· Inflation edges down to 3.8% and inflation expectations subside further, amid growing evidence of technical recession and deteriorating business and consumer confidence.

· Some increase seen in downside risks to growth, while 'headline' inflation rate seems set to decline gradually over the next six months but upside risks to inflation from cost feed-through remain.

· Money and credit growth continue to slow but underlying expansion still strong and increase in liquidity overhang continues.

· Continuing abnormally high short-term market rates allow ECB time to debate further the extent to which weaker economic activity will ease inflation pressures.

· Interest rate instrument will remain dedicated to monetary policy's price stability objective, while credit market paralysis will continue be met with liquidity injections.



© EZA

Documents associated with this article

EZA863.pdf


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