ECB rates unchanged
Thursday, August 5, 2004 1:46:26 PM
(updating with economist comments)
FRANKFURT (AFX) - The European Central Bank said it left its leading interest rates unchanged at today's governing council meeting. The minimum bid rate on main refinancing operations remains at 2.00 pct. The deposit rate remains at 1.00 pct and the rate on the marginal lending facility at 3.00 pct. Whereas the ECB normally holds a news conference after its monthly interest rate decision, there was no news conference following today's meeting, which took place by teleconference
The central bank just issued a brief statement on its interest rate decisions
Economists will therefore closely scrutinise next Thursday's ECB monthly bulletin, which will convey the central bank's latest thinking on inflation pressures and the euro zone economy
This analysis is normally given by ECB president Jean-Claude Trichet in his introductory statement to the monthly news conference, with the bulletin echoing this a week later
"Without the press conference after the meeting, we are none the wiser to the outlook for euro zone rates than before today's announcement and we await next week's monthly bulletin to communicate any changes in thinking," said David Page of Investec
The decision to leave rates unchanged today was expected, with all economists polled by AFX News and Agence France-Presse predicting that rates would be left on hold
Economists said the ECB is in no rush to tighten monetary policy despite short-term inflation pressures, because inflation is likely to ease in the medium term as a result of moderate wage growth. Euro zone inflation is running at 2.4 pct compared with the ECB's goal of a rate below but close to 2 pct
Carol Hainaut of Natexis Banques Populaires said the oil-related jump in inflation in the spring has not translated into any build up of longer-term inflation pressures
"Price growth will slow down slightly in the next few months," she said
Page said there is no evidence that the more recent further rise in oil prices, which has been compounded by a softening of the euro, has affected longer-term inflation expectations
He said economic growth is likely to pick up and reach 2.0 pct for the year as a whole. If so, the ECB will need to raise rates before the end of the year, he said
But Hainaut said 2004 growth is unlikely to be above 1.8 pct
"In this context, an early tightening of monetary policy would be premature and would risk stifling a recovery which is still only just starting," she said
Page said there are some concerns about consumer demand following a downward revision to May retail sales. EU statistics office Eurostat this week said retail sales rose 1.2 pct in June, but it revised its estimate for the decline in May retail sales to 1.9 pct from 1.3 pct
Retail sales contracted 0.3 pct in the second quarter as a whole, so consumer spending is likely to have slowed significantly from its impressive first quarter rise of 0.6 pct, he said
"If downside risks to consumption materialise across the second half of this year, possibly in response to higher oil prices, then the central bank may continue its holding pattern until into 2005," he said
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