EUROPEAN Central Bank (ECB) rates are expected to stay at their record low level for at least another year, but steady hikes are then expected.
According to a Reuters poll, the ECB will hold interest rates at 1% for at least another year as it battles to revitalise a struggling economy and bring inflation back up to target.
None of the 79 economists polled last week said the ECB would shift rates from 1% when it meets on Thursday for its monthly meeting. This would be good news for tracker mortgage holders as their rates follow the ECB. The poll pointed to a higher 25% chance of a hike by the middle of next year, but Bloxham Stockbrokers said the results suggested the ECB would not raise rates until next October at the earliest.
The poll pointed to ECB rates rising by 25 basis points to 1.25% in the final three months of 2011 and then by an additional 25bps each quarter to the end of June 2012.
“The bottom line is that the eurozone economy is slowing, which will keep a lid on inflation pressures, allowing low rates to remain in place for a considerable period,” said Bloxham economists.
The economists said that a year ago, just as euroland was escaping from its deepest recession in post-war history, analysts saw a rate hike by the end of 2010 as a foregone conclusion amid expectations for a quickening recovery.
“But things have changed dramatically since then,” they said.
Economists expect that given the cooling of the US economy and dampening effects from fiscal tightening in the EMU, ECB president Jean-Clude Trichet is likely to stress that the economic outlook is still uncertain and that monetary policy must remain cautious.
UniCredit economists said the ECB’s monetary analysis could sound “slightly more upbeat”.
They said Mr Trichet is unlikely to provide much colour on recent developments in Ireland and even less so on the appropriateness for us of tapping rescue funds at this stage.
“A particular focus will be on the ECB’s position on the future institutional framework of the European Union – a subject on which Mr Trichet already provided a very clear and articulated view on September 27 during his speech before the EU Parliament’s economic and monetary affairs committee,” they said.
The Reuters poll also saw Mr Trichet receiving a rating of eight out of 10 for his performance.
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