THE ECB duly holds
This certainly makes more sense than a further hike it will be interesting to see what happens now.
'Eurozone interest rates were left at 3 per cent by the European Central Bank on Thursday as concerns over economic growth outweighed the need for vigilance on inflation.
Although growth in the second quarter was strong, pushing up to 0.9 per cent from 0.6 per cent in the first quarter, there were possibly temporary factors contributing to this, including the Football World Cup in Germany.
The ECB considers that risks to the economy are balanced in the short term, but is concerned that longer term risks prevail. This view was supported by recent investment and business confidence data.
Both Ifo business sentiment and ZEW investor confidence data last week showed current conditions remained upbeat, but falls in the expectations component of the data reflected unease about the economy further out into 2007.
The European Commission’s index of economic sentiment on Thursday showed its first fall in nine months, driven by a fall in industrial confidence and consumer sentiment.
Meanwhile, some inflationary factors eased, including a slowdown in M3 money supply in July and a downward revision of headline inflation in the same month to 2.4 per cent.'
But are we in it again come October?
'At its post decision press conference, the central bank is expected to hint at a move higher in October, with the return of its pledge to exercise “vigilance” over price developments. It is expected also to lift rates again in December, taking the main refinancing rate up to 3.5 per cent by the end of the year.
“As the ECB has already stepped up the pace of its rate hikes moving from a one-hike-every quarter stance to a rhythm of a rate hike every two months, yet another acceleration of the ECB’s pace does not seem warranted,” said Erik Sonntag at ING Financial Markets.'
[Update 31.8.2006]
Here is the press release from ECB (below is only a small quote!)
'On the basis of our regular economic and monetary analyses, at today’s meeting we decided to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates earlier this month. It has also confirmed that strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained. With key ECB interest rates at still low levels in both nominal and real terms, money and credit growth dynamic, and liquidity ample by all plausible measures, our monetary policy continues to be accommodative.'
FT's Lex column also comments on the halt ... (walled for non-subscribers)
'Is the European Central Bank’s monetary policy all talk and no trousers? To be consistent with its own rhetoric, it should be raising interest rates. Instead, market expectations were fulfilled on Thursday when it left them unchanged.
Policy gradualism certainly has some merits. The ECB has raised rates four times since December to their current 3 per cent, and it has never argued in favour of aggressive withdrawal of monetary accommodation. Indeed, some would argue that the ECB has less reason for hawkishness than at its last meeting. Eurozone inflation, announced on Thursday, fell to 2.3 per cent year-on-year in August from 2.4 per cent in July, energy prices are dropping, and the eurozone economic sentiment indicator edged down for the first time in nine months in August.'