ECB Conform to Market Expectations
September 4, 2008
The ECB conformed to market expectations and held interest rates steady today at 4.25%. As expected Jean-Claude Trichet provided little hope of near-term rate cuts as the ECB maintain their tough stance against inflation, despite the deteriorating growth outlook. Economic data over the last month has confirmed a hit to the Eurozone economy, which contracted in the second quarter for the first time since the launch of the Euro in 1999. On the inflation front, Eurozone HICP eased only slightly to 3.8%y/y in August, but is still roughly double the ECB’s target and unlikely to fall below 3.0% until the second quarter of next year. The Euro had a very discrete initial response to the ECB announcement, but as the market began digesting the bleak growth outlook for the Eurozone the currency fell as low as 1.4215 against the U.S. dollar.