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  • Feb 28th, 2005
  • Comments Off on ECB tipped to hold interest rates steady
The European Central Bank will keep its interest rates unchanged for the 21st month in succession at next Thursday's governing council meeting and is unlikely to start tightening monetary policy until later in the year, according to a poll of 30 economists by AFP and its financial news unit AFX. All of the economists polled said they expected the ECB to keep its main refinancing rate at 2.00 percent. Nine of the 30 respondents saw the ECB starting to raise rates in the third quarter, with many predicting a September hike.

But eight said they expected rates to remain unchanged at least until the end of this year, while five economists forecast a second-quarter tightening move. A further five predicted that the ECB would hold off until the fourth quarter before increasing rates.

While the ECB is concerned about strong monetary and lending growth, such worries are still being offset by the sluggish pace of the economy and continued euro strength, economists said.

"Strong money supply and credit growth and oil prices remain a big concern for the ECB," said Daniela Etschberger of Dresdner Kleinwort Wasserstein.

"But given recent disappointing economic data - fourth-quarter GDP (gross domestic product), the February business surveys - and benign inflation, we think an ECB rate hike remains unlikely."

Added Alexande Bourgeois of Natexis Banques Populaires: "Everything argues for rates being left unchanged - the slowdown in growth in the second half of 2004, the decline in inflation at the start of this year and the level of the euro, which is still too high and damaging for the eurozone economy."

In Britain, meanwhile, sterling markets will be closely watching a raft of economic data next week to see if higher borrowing costs are on their way soon.

Expectations of at least one more quarter-point interest rate hike from the Bank of England have mounted as minutes to the last rate-setting Monetary Policy Committee showed that the nine-member panel discussed higher rates.

In the coming days, the markets will have valuable consumption and borrowing data to digest, in particular official lending data from the central bank on Tuesday.

Copyright Agence France-Presse, 2005


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