- • ECB calls off threat ‘to act pre-emptively’ against higher inflation
- • Mr. Trichet acknowledges increased threat of weaker growth
- • Comments provide ECB with leeway for early rate cut if needed
- • March reduction can’t entirely be ruled out but April/May reduction now looking more likely
- • ECB may cut interest rates 3 times in 2008
While the European Central Bank kept its key rates unchanged today, comments made by its president, Jean Claude Trichet, will serve to increase expectations that the ECB could cut rates in the not too distant future. As a first step, Mr. Trichet stood down the threat of further rates increases which the ECB had signalled every month since it last raised rates in June 2007. In addition, the tone of Mr. Trichet’s remarks, which emphasised concerns about weak growth and repeatedly alluded to a determination not to precommit on policy, will sustain the possibility that rates could be reduced within a matter of months if poorer economic conditions were to warrant such action.
