EZA 838 Report: ECB Observer

10 April 2008

ECB 10 April Council Preview


NO RATE CHANGE FORESEEN FOR 10 APRIL: CUT POSSIBLE IN 2008 H2, BUT RATE RISE BY END 2008 NOT RULED OUT.

· With 'headline' inflation rate at 3.5% in March, as external cost pressures and domestic pass-through to prices persist, risks of second-round wage-price effects remain.

· Following 2007 Q4 weakness, some signs that economic activity may have picked up at the start of 2008, although confidence remains somewhat bruised.

· Some evidence that past rate hikes, plus financial market tightness and euro strength, are pushing monetary aggregates in the right direction, but money and credit growth still vigorous and liquidity overhang goes on widening.

· ECB seen staying in neutral mode, monitoring how wage negotiations and developments in financial markets, the US economy and global growth play out, with official rates likely to remain on hold well into second half of 2008.

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