27 October 2009

EZA916 Report: ECB 8 October Council Preview

ECB's 'REFI' RATE EXPECTED TO REMAIN ON HOLD THROUGH TO MID-2010, WHEN GRADUAL WITHDRAWAL OF ENHANCED CREDIT SUPPORT IS LIKELY TO BEGIN.

·        Still no concrete evidence of a pick-up in activity, but reviving industrial order books and rising confidence indicators point suggest there is now some light at the end of the tunnel.

·        'Core' inflation steadied at +1.2% in August whereas 'headline' inflation remained negative (-0.3%) in September, but labour costs and external cost pressures continue to mount.

·        Money and credit growth continues to fall away, with shorter-term loans to corporations cut back or run off and lending to households turns negative.

·        EZA sees ECB remaining in wait-and-see mode well into 2010, but on the 'qui vive' for signs of economic upturn and inflation threats, with gradual unwinding of special credit measures and cautious raising of official interest rates around mid-year.

Please see attached our regular ECB Council preview from John Arrowsmith in the attached pdf.

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

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