EZA 833 Report: ECB Observer

04 March 2008

ECB 6 March Council Preview

NO RATE MOVE EXPECTED 6 MARCH: ECB SEEN LIKELY TO REMAIN IN NEUTRAL THROUGH INTO 2nd HALF OF 2008, WITH POSSIBLE 25 bp CUT NEAR END-2008.

· Weaker activity in 2007 Q4 confirmed, with quarterly GDP growth down from 0.8% to 0.4%, slightly below 0.5% trend rate.

· Inflation risks remain clearly on the upside with 3.2% 'headline' rate again in February, with external cost pressures and domestic pass-through effects persisting.

· Money and credit growth still rapid and liquidity overhang widens further.

· ECB seen in neutral mode, monitoring how wage negotiations and developments in financial markets, the US economy and global growth play out.

· No early rate cut expected: likely to remain on hold well into second half of 2008.

© Graham Bishop