ECB leave interest rates on hold at 4.00%
7 February 2008
As expected, the ECB elected to keep rates on hold at 4.0% this afternoon, though the prospect of slower economic growth may yet put a rate cut back on the agenda.
Since the ECB met last month, Europe’s growth outlook has significantly weakened; stock markets have tumbled and the Fed has aggressively cut rates by 1.25%. We therefore expect the ECB to have edged away from its hawkish bias, adopting a more neutral approach going forward into 2008.
However, Trichet still faces the task of cooling accelerating inflationary pressures as Eurozone inflation touched 3.2%y/y last week. Inflation is currently running at an all time high since the conception of the Euro and considerable above the ECB’s inflation target of just below 2%.
The market will pay particular attention to the accompanying news conference at 1.30pm, for any indication of future monetary policy bias.