08 June 2010

EZA 952 Report: ECB 10 June Council Preview

RATES STILL SEEN ON HOLD THROUGH TO LATE 2010 WHILE STRAINS PERSIST IN MONEY AND BOND MARKETS AND ECB REBALANCES ITS SUPPORT PROGRAMMES

·        GDP growth edges up from 0.1% to 0.2% in Q1, as stockbuilding surge causes jump in domestic demand which is largely offset by net imports.

·        Economic recovery continues into Q2 but remains fragile and patchy.

·        Inflation creeps up from 1.5% to 1.6%in May while inflation expectations remain anchored broadly in line with ECB's price stability objective, but external cost pressures mount and seen feeding through into more rapid rises in industry's output prices.

·        Slowdown in underlying rate of M3 growth may have halted and credit growth turns positive as mortgage lending strengthens but loans to enterprises fall back further.

·        ECB expected to keep any rise in official rates on hold until tail end of 2010 while it gauges the impact of the maturing 12-month LTROs, the partial relaxation of its programme for ending special credit support and the implementation of its bond purchase programme.

Please see attached our regular pre-meeting analysis from John Arrowsmith. Simply read the full report onscreen or print from the pdf.

For further information please contact:

John Arrowsmith

+44 (0) 7720 591 726

john.arrowsmith@eurozoneadvisors.com

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