ECB leave interest rates unchanged at 4.25%
04 September 2008
The ECB conformed to market expectations and held interest rates steady today at 4.25%, with Jean-Claude Trichet expected to hold out little hope of near-term rate cuts as the ECB maintain their tough stance against inflation, despite the deteriorating growth outlook.
Economic data over the last month has confirmed a hit to the Eurozone economy, which contracted in the second quarter for the first time since the launch of the Euro in 1999. Against this back-drop, the September projections are tending towards a downward revision for GDP growth for both 2008 and 2009 in light of ongoing financial market turbulence and lower export growth due to a global economic slowdown. On the inflation front, Eurozone HICP eased only slightly to 3.8%y/y in August, but is still roughly double the ECB’s target and unlikely to fall below 3.0% until the second quarter of next year. Meanwhile, the ECB will be particularly nervous about over-generous pay deals as EU unions demand well-above inflation increases, to offset recent jumps in living costs.
The focus now shifts to the accompanying news conference at 1.30pm with the market paying particular attention to the tone adopted by Mr Trichet to gauge any forward thinking on monetary bias.