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ECB 5 July Council Preview
NO 'REFI' RISE LIKELY THURSDAY BUT 25 BP HIKE TO 4 1/4% SEEN FOR 6 SEPT, AS MARKETS CATCHING UP WITH EZA VIEW OF 4 1/2% BY END-2007, 4 3/4% MID-2008
·No rate change expected for 5 July but, as Trichet hinted last month, 25 bp hike to 4 1/4% likely on 6 September.
·Latest economic and monetary data show mixed picture but little overall change seen in balance of upside inflation/downside growth risks.
·Monthly indicators suggest activity weakened at start of second quarter but economic confidence remained buoyant throughout.
·Inflation stuck at 1.9% but could rise in coming months, with fading base effects and with rising external costs now feeding through into domestic industry's output prices.
·M3 growth accelerates and credit growth remains rapid, although changing composition of both showing some response to past rate hikes, while liquidity overhang widens further.
·Financial markets and analysts catching up with EZA's long-held view that the 'refi' rate likely to reach 4 1/2% around end-2007 and even 4 3/4% in first half of 2008.