ECB leave interest rates on hold at 4.00%
10 January 2008
The European Central Bank decided to keep interest rates hold at today’s meeting, given the uncertainly over the impact of the global credit squeeze on the Eurozone. The futures markets have effectively priced in no change on ECB interest rates for the most part of 2008, as deteriorating growth and inflationary pressures plague the European trading bloc.
Recent economic data releases confirm the slowdown within the Eurozone is well underway however, inflation remains a concern with December’s annual inflation figure expected to come in slightly above November’s figure of 3.1%y/y at 3.2%y/y. Policymakers face the challenge of containing upcoming wage negotiations in the face of rising fuel and food prices as they attempt to achieve the ECB 2.0% inflation target. Slowing economic growth could help deflate any inflationary bubble in the coming months assisted by the effects of the strong Euro in reducing import prices.
The market will focus on the accompanying news conference to establish the thoughts behind the latest rate decision and the ECB’s stance into 2008.