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04 March 2009

EZA 885 Report: ECB Observer




ECB 5 March Council Preview
 

DEEPENING RECESSION WHILE INFLATION STAYS VERY LOW, WITH DOWNSIDE RISKS TO BOTH, MAKE 50 bp RATE CUT ON 5 MARCH A NEAR CERTAINTY

· Confirmation that the eurozone economy slumped, by 1.5%, in 2008 Q4.

· Monthly indicators and survey evidence point to an accelerating decline in activity during the course of Q4 and on into 2009 Q1.

· 'Headline' inflation rate edges up slightly to 1.2%, still 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 pressures are diminishing.

· Materialisation of downside risks to economic activity and increased downside risks to price stability make a 50 bp cut in ECB rates on 5 March a racing cert.

· EZA sees a further cut of up to 50 bp in a few months' time as dependent on the resolution of divergent views in the Governing Council on quantitative easing and the liquidity trap.

 



© EZA

Documents associated with this article

EZA885.pdf


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