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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (7375)	6/15/2006 6:34:04 PM
From: John Pitera	Respond to of 33421

Jon, Thank you for answering that on OER "Owner's Equivalent Rent". I was not familar with that at all. The ECB stands ready to raise rates....... ECB ready to tighten again, indicates gradual path Thursday, June 15, 2006 7:56:36 AM (GMT-06:00) Provided by: Reuters News (Adds Caruana, updates markets and recasts) By Stella Dawson, Chief ECB Correspondent FRANKFURT, June 15 (Reuters) - The European Central Bank stands ready to raise interest rates again to tackle inflation in the euro zone, ECB policymakers said on Thursday, with one central bank report indicating increases would be gradual. Financial markets have become worried that central banks in the world's biggest economies will raise rates too aggressively and undermine strong world economic growth. While ECB Governing Council members made clear further rate rises were coming, they indicated they were in no rush to tighten credit. "The rhythm of interest rate rises will depend on the strength of recovery and inflation pressures which could emerge," ECB Executive Board member Lorenzo Bini Smaghi told the Italian newspaper La Stampa in an interview. ECB Governing Council member Jaime Caruana of Spain said ECB rates were likely to rise "somewhat". In its annual report the Bank of Spain also said the ECB is on a progressive tightening path and these rate moves would address the Spanish situation, where both growth and inflation exceed the euro zone average. "In the current growth situation the change of tone in common monetary policy, which is heading for a gradual correction of the expansive orientation of the last few years, is going forward in line with the needs of the Spanish economy," it said. This echoed ECB President Jean-Claude Trichet's comment last week that the central bank is progressively withdrawing monetary stimulation, although he left open the timing. In Helsinki, Governing Council member Erkki Liikanen of Finland said the ECB is committed to keeping inflationary expectations well anchored. "The Governing Council will act when needed," he said. MARKETS NERVOUS The ECB has raised rates by three quarters of a percentage point since December to 2.75 percent and analysts expect them to hit 3.25 percent by the end of the year. Worries about oil-driven inflationary pressures in the United States and Europe have spooked markets. Euro zone consumer prices rose 2.5 percent year-on-year in May, the highest rate since last September. Euribor interest rate futures for the September contract fell almost half a point <GVD/EUR> on Thursday as dealers priced in costlier money. The yield on the rate-sensitive two-year note rose by four basis points to 3.38 percent. In its monthly bulletin, the ECB gave more reason for inflationary concern, saying that its new forecasting model based on monetary indicators point to upside risks. The model using money and credit data, which the ECB examines in its deciding on rates, shows inflation above 2 percent until early 2009 and possibly reaching 3.5 percent. The bulletin repeated the warning that the ECB is watching inflationary developments closely, a message also delivered by Liikanen. "Euro area inflation has remained above 2 percent, and it is not expected to slow down significantly in the immediate future. Moreover, the risks in the inflation outlook are weighted to the upside," he said in presenting the Finnish economic outlook. The Bank of Spain was a little more optimistic on the inflation front. Its annual report said euro zone inflation is expected to ease over the course of the year, though average inflation would remain above the ECB's ceiling of 2 percent. Euro zone growth is recovering towards its potential, seen around 2 percent, but there are still risks from low job creation and possible second-round inflationary effects due to high oil prices, the Bank of Spain said. ((Additional reporting by Tarmo Virki in Finland, David Milliken in Frankfurt, Robin Pomeroy and Jo Winterbottom in Rome; Elisabeth O'Leary and Jane Barrett in Madrid. Writing by Stella Dawson, editing by David Stamp; Frankfurt newsroom +49 69 7565 1219; instant messaging