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ECB 12 April Council Post-Meeting Assessment
·As signalled by Trichet a month ago, ECB kept key rates unchanged on 12 April.
·Using same language as in March statement, interest rates seen as 'moderate', policy 'on the accommodative side', Governing Council would monitor very closely all developments and 'acting in a timely manner remains essential'.
·Real GDP growth seen remaining robust in 2007 H1 but downside risks remain over medium/longer term.
·Statistical effects expected to push inflation lower at first but to raise it to around 2% later in the year, while upside risks to price stability remain.
·Continuing concern at record M3 growth rates and still rapid private sector credit growth.
·Trichet signals 25 bp rate rise likely in June, in line with recent market expectations, and leaves door open for further increases later in 2007, as long predicted by EZA.
EZA Conclusion: Odds have shortened further on a 25 bp increase, to a still broadly neutral 4%, in the 'refi' rate in June and also on the likely need for one or two more increases, to a slightly restrictive 4 1/4%-4 1/2% by the end of 2007, as we have been predicting for some time. Trichet's refusal to be drawn on what happens after June reflects the pragmatic, evidence-based approach the Governing Council has always adopted and the desire to achieve consensus between its 'activist' members who want to maintain, or even intensify, the pace of tightening and the 'gradualists' who favour a slowing, or even a halt at 4%, as rates approach a likely peak.