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ECB: Preview of meeting on October 2
Thu, Oct 2 2008, 08:57 GMT
by Søren Dijohn
Overview: We expect the ECB to leave rates unchanged but enter a transition phase towards an easing bias. We expect a softer tone as the Council is becoming increasingly nervous about the economic situation.
The ECB is facing several of its risk scenarios. The outlook for inflation is increasingly favourable and the output gap is declining. Furthermore the economic outlook is looking increasingly weak - not least due to the ongoing financial crisis. In our view, the ECB is set to respond with some policy easing. However, we doubt it will go any further than just expressing its concern at the meeting on Thursday. Going further would be at odds with the rate hike in July which was a signal to wage and price setters that the ECB does not tolerate second-round effects. Thus we think it most likely that the ECB will adopt a "no bias" stance with a repeat of the key policy phrase signalling that rates are appropriate currently.
Published on Thu, Oct 2 2008, 08:59 GMT
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