EZA 839 Report: ECB Observer

15 April 2008

ECB 10 April Council Post-Meeting Assessment


· As widely expected, the ECB kept its key interest rates unchanged on 10 April, maintaining its neutral policy stance, but with a rather clearer hint now of a bias towards tightening.

· Risks to growth played down slightly but short-term inflation risks, given further acceleration of 'headline' rate from 3.3% to 3.5% in March, if anything seen to be greater and longer-lasting.

· Continuing vigorous money and credit growth again confirm inflation risks over the medium to longer term.

· Clear distinction between assignment of interest rate instrument to pursuit of price stability and use of other instruments to maintain orderly money markets.



EZA Conclusion: The Governing Council remains in neutral, with no indication that an early cut in rates is on the cards. Barring accidents on the growth or inflation fronts, we still see rates staying on hold well into the second half of 2008 and possibly through to the beginning of 2009, and we do not rule out an increase in the ECB's main refinancing rate if market tensions subside and short-term market rates return to more normal levels.

© EZA