01 March 2010

EZA 935 Report: ECB Observer

'REFI' RATE SEEN HELD THROUGH TO AUTUMN OR BEYOND, AS €614 bn MATURING 12-MONTH LTROs

POSE LIQUIDITY CHALLENGE AND IMPACT MARKET RATES

·        Economic recovery still hesitant and patchy around the turn of the year and inflation expectations remain subdued.

·        ECB Staff's March macro projections likely to show further slight downward revisions to GDP growth and inflation figures for 2010 and 2011.

·        Annual M3 growth rate turns slightly positive but latest 1-, 3- and 6-month growth rates all negative, loans to non-bank corporations are cut back further but lending to households continues modest upturn.

·        EZA continues to expect ECB to keep rates on hold at least until the autumn, while preparing to cushion potential EUR 442 bn liquidity squeeze on 1 July, when last June's 12-month LTRO matures, and evaluating the impact of this on market interest rates.

·        ECB expected to announce on Thursday its procedures for smoothing the impact of all three maturing 12-month LTROs (totalling EUR 614 bn) in the second half of 2010.

Please see our regular preview from John Arrowsmith as a pdf file to read onscreen or simply print and read at your convenience.

 Please see attached our regular Council Preview from John Arrowsmith, simply read onscreen or print and read at your convenience

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