ECB RATES TO BE KEPT ON HOLD FOR SEVERAL MORE MONTHS, WITH MAIN 'REFI' RATE LIKELY TO STAY AT 1% THROUGH TO MID-2010 BEFORE A HIKE.
· Despite dismal monthly indicators, real GDP shows Q2 fall of only 0.1%, while survey evidence continues to show gradual return of economic confidence well into Q3.
· Negative 'headline' inflation retreats from 0.7% to 0.1% in August while 'core' inflation continues downward drift, but external cost pressures continue to mount.
· Money and credit growth continue to subside, with short-term loans to corporations cut back or run off, although lending to households, notably for house purchase, stabilises.
· EZA sees ECB remaining in wait-and-see mode for well into 2010 as special measures feed through, but eventual rate move almost certainly will be up rather than down.
EZA Conclusion: we expect the Governing Council to remain in wait-and-see mode this month and for some time to come, to evaluate the effectiveness of its extended-maturity longer-term refinancing operations and the EUR 60 bn covered bond purchase programme on which it recently embarked. EZA's therefore reaffirms its view [see, most recently, EZA909/10Aug09] that the Governing Council will keep its key policy rates on hold for several more months, and the minimum bid rate for its main re-financing operations at the present level of 1% through the first half of 2010. We also continue to believe that, barring any fresh melt-down in financial markets, the next rate move will be up rather than down.
Please see attached our regular ECB Council Preview from John Arrowsmith.
John Arrowsmith: ECB / Regulatory
Tel: +44 7720 59 1726
john.arrowsmith@eurozoneadvisors.com
Discussion Partners
John Arrowsmith: ECB / Regulatory
Tel: +44 7720 59 1726
john.arrowsmith@eurozoneadvisors.com
Dr Michael Clauss: Germany Politics / Economy / Equities Sectoral Analysis
Tel: +49 89 64254046
michael.clauss@eurozoneadvisors.com
Jacques Lafitte: France Politics / Brussels
Tel: +32 473 934 664
© EZA
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