Econoday Report: ECB Announcement 8, 2007

2007 U.S. Economic Events & Analysis

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ECB Announcement

Definition
The European Central Bank Governing Council consists of 18 members. The Committee meets twice a month. The first monthly meeting of the month is devoted to monetary policy. Changes in monetary policy if any are announced immediately after the meetings. A press conference is held about 45 minutes after the meeting ends. A statement is read concerning their action -- or lack of it -- followed by a question and answer period. The ECB does not publish any minutes for its meetings. Why Investors Care

Released on 11/8/07

Change
Actual	0bp
Previous	0 bp

Level
Actual	4.0%

Highlights
As expected, the European Central Bank stayed in its holding pattern and left its key interest rate at 4 percent. The ECB is in a difficult position at the moment with inflation rising and growth weakening. Flash harmonized index of consumer prices jumped 2.6 percent in October. The ECB inflation target is 2 percent. While higher prices would normally point to a rate increase slowing growth could eventually put pressure on the ECB to lower rates. Earlier today the Bank of England kept its key rate at 5.75 percent, the highest of the G7 countries.

Another issue for the ECB is the almost daily new highs of the euro, but German Finance Minister Peer Steinbrueck yesterday stressed the positive effect of the elevated currency on the price of German oil imports. He thought that the stronger the euro, the easier the high oil price can be digested.

Inflation stands in the way of cutting rates, while weaker economic growth blocks the increase Trichet had intended as recently as two months ago. Keeping rates unchanged would mean that the Bank would have to rely on the weakening economy and the high value of the euro will eventually haul inflation back into line. Needless to say, analysts will be parsing the press conference comments of ECB president Jean Claude Trichet very carefully today.

Trends

The ECB monitors two "pillars" of monetary policy - the harmonized index of consumer prices (HICP) and M3 money supply - in its objective to control inflation. The ceiling for HICP growth is 2 percent. M3 growth is targeted at a 4.5 percent reference growth rate. The Bank had trouble controlling both but was reluctant to increase interest rates until December 2005. In November, the flash HICP was up 3.0 percent while money supply growth expanded at a rate of 11.7 percent for the three months ending in October when compared with the same three months a year earlier. After a series of rate increases, the ECB is expected to remain on hold for at least the next several months.

Data Source: Haver Analytics

2007 Release Schedule

Released On: 1/11 2/8 3/8 4/12 5/10 6/6 7/5 8/2 9/6 10/4 11/8 12/6

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