ECB Watch


#1

ECB to leave rates on hold at 3.5%?

Thursday, 8 February 2007 09:18

The European Central Bank is expected to leave interest rates at 3.5% today but it’s also expected to signal a rates increase in March.

Today at the press conference following the ECB rates decision all ears will be listening out for bank chief Jean Claude Trichet using the phrase “strong vigilance”.

This is because every rate hike since the ECB began raising rates in December 2005 has been preceded by a warning of “vigilance”.

Meanwhile the Bank of England is expected to keep interest rates on hold at 5.25% today, but after last month’s shock rates hike another is possible today.

www.rte.ie


#2

Interesting article here

unison.ie/irish_independent/ … e_id=15280

and here

fxcentre.com/news.asp?1643505

Basically ABM Ambro are predicting an ECB of 4.5% this year. This is the highest rate prediction that I’ve seen by any bank yet. Closer to home Davy’s are quoted as saying that the peak of 4% looks shaky. Another mention of the fact that a June rate increase would be signaled at the ECB meeting here in Dublin just before the General Election.


#3

Current rate is 3.5%. 4% looks like an absolute certainty.


#4

Euro Area money supply growth hits a 17 year high in January putting further pressure on interest rates.

ft.com/cms/s/8710833a-c652-11db-be1a-000b5df10621.html


#5

ECB lifts key rate by quarter-point

Thursday, 8 March 2007 13:05

The European Central Bank has raised its main interest rate by a quarter of a percentage point to 3.75% after its meeting in Frankfurt today. The move was widely expected.

The last time ECB interest rates stood at 3.75% was in September 2001. The bank has now raised its key rate seven times since December 2005, each time by a quarter of a percentage point. The last move was on December 7.

Top ECB officials, including president Jean-Claude Trichet, had carefully prepared financial markets for the interest rate move. They have signalled that the bank remains worried about risks from inflation.

AdvertisementBanks and others lenders are now expected to now fully pass on the rate rise to mortgage borrowers. It will add about €15 to monthly mortgage repayments for every €100,000 newly borrowed.

Added to the the other six increases announced since December 2005, it means that in just 15 months mortgage borrowing costs will have risen by €105 a month for every €100,000 borrowed.

Unfortunately for mortgage holders and house-buyers, economists are expecting that the ECB may have to raise interest rates further in the months ahead.

Halifax has increased its monthly saver account rate by 0.35% to 7.00%, which betters the 0.25% ECB rate increase today.

The bank says it is the best interest rate available in Ireland, and promise it will stay at least 1.5% above the ECB base rate until January next year.


#6

rte.ie/business/2007/0419/ecb.html


#7

It’s worth taking a look at the betting market of betfair.com to gauge the likelyhood of a rise in interest rates.

sports.betfair.com/Index.do?mi=2 … origin=MRL

At the moment, it’s not an undistant possibility.


#8

ecb.int/home/html/index.en.html


#9

i wonder what are the chances of a .5% increase and if it i happened what kind of a effect would it have in ireland . i think would be the final nail in the coffin for the property bubble as we know it


#10

No fear of that in the foreseeable future, we are getting the boiled frog treatment with regard to interest rates.


#11

I would be very interested to see this next graph up to date and then predicted for interest rates of 4.5%


#12

rte.ie/business/2007/0529/ecb.html


#13

Axel Weber seems to be one of the most hawkish ECB members, and as the resident German on the council, is probably second only to Mr. Trichet in terms of clout.

rte.ie/business/2007/0529/ecb.html

It’s interesting what he’s saying about code-phrases. I mentioned this a month or so ago that I felt that most commentators were coming to rely on the code-phrases rather than looking at the facts available. Economists were revising their peaks upwards by .25% every few months, nearly always 4 months before their old “peak” was due i.e. just after the meeting where Trichet would copperfasten the hike due in the following month. The effect being that there always seemed to be just another couple of hikes before the peak.


#14

Not good news if you want a stop to interest rate rises. A raised inflation forecast would be very bad news indeed.


#15

Up a quarter of a percent as expected.

Any bets on what will be said at the press conference? Will the word “accommodative” be used? It’s like central banks for dummies, I’m not surprised they want to dump the use of key words.


#16

From bbc.co.uk

So no sign of another rise in July or August then. Surely by September and another in Nov/Dec likely at this stage too?


#17

His use of “still on the accommodative side” is huge news. It means that rates are still not at a neutral level as far as the ECB is concerned. With the recent comments that rates may have to go a restrictive level, 2 more rises are almost guaranteed.


#18

Agreed.

Dermot O’Leary of Goodbody was on the radio the other evening saying that he’d lean towards a pause at 4.25% although he admitted that some other economists expected 4.5% to be the peak.

I think Irish economists are simply looking at this the wrong way. They’ve become so used to the gravy train of cheap credit that they believe that the ECB think like them, i.e. low rates are great so don’t raise them unless you have to. What’s clear to me is that the ECB think quite the opposite to this - raise the rates unless events dictate otherwise.

I’ll say it again - 5% is quite possible in this cycle, 5.5% isn’t impossible either.


#19

The thing is that what level qualifies as ‘neutral’ rates varies depending on other economic conditions - a rate which would choke a faltering economy might well be overly loose in a booming economy, due to sentiment. They apparently maintain an internal estimate of what the neutral rate is, but i haven’t seen it publicly.

Considering that europe is growing strongly at the moment, they may easily consider ‘neutral’ to be in the region of 4.5% - which means the peak will be above that.

The ECB is just starting to see a stablisation in the rate of credit and M3 growth now, both at levels which are far too high - over 10% M3 growth against a target of 4.5%. How much more it will need to bring that back into line, we shall see - but i wouldn’t rule out 5%+


#20

George Lee poked a little fun at the bank “economists” getting it repeatedly wrong :smiley:

Barring an external shock, we’re heading for 4.5% minimum by next year.