ECB 5 February Council Post-Meeting Assessment
· As widely expected, the ECB left its main refinancing rate unchanged, at 2.0% 5 February, leaving the rates on its standing facility rates at 1.0% and 3.0%.
· The eurozone was undergoing "an extended period of significant economic downturn", with latest data pointing to "very negative growth" in 2008 Q4.
· Risks to economic growth remain on the downside, with continuing downside and upside risks to price stability.
· Slowing rate of monetary expansion supports view that inflationary pressures diminishing.
· A repeat of last month's statement that 2% not the bottom limit for ECB's 'refi' rate and a March cut not ruled out, but Trichet refuses to be drawn on the size of possible cut.
· A zero 'refi' rate again "not seen as appropriate" and new 'non-standard' easing measures could be considered, even before a zero 'refi' rate was reached.
Conclusion: There is now a strong presumption, not denied by Trichet, that there will be another 50 bp cut in the ECB's 'refi' rate on 5 March, possibly in conjunction with the announcement of some new quantitative easing measures, in line with EZA's view heralded in our ECB 5 February Council Preview (EZA880/02Feb09). This would still leave headroom for at least a further 50 bp cut by the middle of the year.
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