EZA Report 574: ECB-Monetary

19 December 2003

Euro rise puts intervention, policy easing back on ECB agenda
Given the attitude of European Central Bank President Jean-Claude Trichet in his first post-Council press conferences, it is clear he may try to reduce their frequency. So concerned is Trichet to keep to the letter of ECB written analysis, including the opening statement, that the Q & A session has become a series of back references, and is a waste of time. Cutting back may, paradoxically, be good for the euro and the ECB. Nuances implied by his predecesssor Wim Duisenberg or inferred by media were usually erroneous, and misled markets. On substance, with the euro rising steadily, mid-East tensions fading and euro area growth prospects pallid, Trichet's assertion of the need for continued 'vigilance' on inflation is well wide of reality, and contrasts starkly with the Fed's precisely opposite analysis. ECB concerns on prices are now focused solely on market expectations. Its new, more realistic price projections at last build in the view - which we have long held - that administered tariffs and public sector budgets pose significant price floors at these CPI levels. The new ECB buzzword has become 'stickiness' on the downside.

SummaryAsset Conclusions: ECB intentionally underplays consequences of speed, extent of euro/dollar rise; intervention and/or policy easing back on agenda

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© Graham Bishop