ECB leave interest rates on hold at 4.00%
05 June 2008
The ECB conformed to market expectations and left interest rates unchanged at 4.00% for a twelfth consecutive month.
Eurozone inflation surged to 3.6%y/y last month, the highest level for almost 16 years on the back of soaring oil prices, all but ruling-out any cut in the European Central Bank interest rates. The acceleration from 3.3% in April is a blow for the ECB, with inflation significantly above its target of an annual rate of “below but close to 2.0%”. Consumer prices are forecast to remain elevated, approaching 4.0% in the coming months before declining only gradually thereafter. However, Eurozone growth is showing increasing signs of slowdown with both the manufacturing and service sectors lingering dangerously close to contraction last month. The domestic slowdown is being exacerbated by weakening demand for EU exports due to slowing overseas demand and the effects of a strong Euro.
The focus now shifts to the accompanying news conference at 1.30pm where the market will be looking to gauge any insight to the committee’s thinking going forward.