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03 February 2009

EZA 880 Report: ECB Observer




ECB 5 February Council Preview
 

DEEPENING RECESSION AND SHARP SLOWING OF INFLATION, WITH DOWNSIDE RISKS REMAINING, BUT 50 bp RATE CUT EXPECTED ON 5 MARCH, NOT 5 FEBRUARY

· Further evidence that recession deepened sharply in 2008 Q4 and indications of further deterioration at the start of 2009.

· 'Headline' inflation rate drops well below ECB's comfort zone, while inflation expectations and external and domestic cost pressures remain subdued.

· Money and credit growth continue to slow, supporting Governing Council's view last month that inflationary risks and pressures are diminishing

· Increased downside risks to economic activity and price stability point to a further cut in ECB rates but, as Trichet indicated last month, March more likely than February.

· EZA sees 50 bp cut probable on 5 March, with 5 February discussion likely to focus on what is the lower limit, beyond which the liquidity trap bites, and on what form a 'Plan B' for 'non-standard action' should take.
 



© EZA

Documents associated with this article

EZA880.pdf


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