EZA 825 Report: ECB Observer

07 January 2008

ECB 10 January Council Preview


NO RATE MOVE EXPECTED 10 JANUARY: ECB's WAIT-AND-SEE STANCE, WITH TIGHTENING BIAS, SET TO CONTINUE THROUGH TO MARCH OR JUNE 2008.

· Heightened inflation risks but financial fragility and uncertainties about GDP growth prospects point to ECB again keeping rates on hold, with tightening bias.

· Fears that current high inflation rate, with tightening labour markets, co induced second-round effects in this year's wage rounds.

· If financial turbulence subsides, ECB could look to March for opportunity to raise 'refit' rate to 4 1/4%, but EZA also sees June a possibility.

© Graham Bishop