ECB 4 September Council Preview
NO RATE CHANGE EXPECTED THURSDAY. RATE RISE BY END-YEAR NOT RULED OUT
BUT MORE LIKELY KEPT ON HOLD UNTIL 1/4% CUT IN EARLY 2009
· Inflation drifts lower, to 3.8%, and inflation expectations subside, amid further signs of a downturn in economic activity and weakening business and consumer confidence.
· Some increase seen in downside risks to growth and 'headline' inflation rate seems likely to decline gradually over the next six months but upside risks to inflation remain.
· July's rise in official interest rates and continuing abnormally high short-term market rates allow ECB time to debate further the extent to which weaker economic activity will ease inflation pressures.
· Growth of monetary aggregates continues to slow but remains vigorous and increase in liquidity overhang continues.
· ECB expected to remain alert while keeping rates on hold for some months to come, with rate rise around end-2008 not ruled out but rate cut more likely early next year.
© EZA
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