10 March 2008

EZA 835 Report: ECB Observer

ECB 06 March Council Post-Meeting Assessment

· As almost universally expected, ECB kept its key rates unchanged on 6 March, maintaining February's neutral policy, with no discussion of raising or lowering rates, but with a hint of a return to a slightly tightening bias.

· GDP growth projection for 2008 revised down from 2.0% to 1.7% for 2008 and from 2.1% to 1.8% for 2009 but inflation projected higher at 2.9% (cf 2.5%) and 2.1% (cf 1.8%).

· Risks to growth played down slightly but short-term inflation risks, given continued 3.2% 'headline' rate in February, if anything seen to be longer-lasting and higher;

· Continuing vigorous money and credit growth confirm inflation risks over the medium to longer term.

EZA Conclusion: the Governing Council remains in neutral, with no indication that an early cut in rates is on the cards. Barring accidents on the growth or inflation fronts, we still see -unlike financial market expectations and many commentators' predictions - rates staying on hold well into the second half of 2008 and possibly, if ECB Staff's macroeconomic growth and inflation projections hold good, through to the beginning of 2009.

© EZA