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Highlights
As universally expected, the European Central Bank kept their policy interest rate at 4 percent. However, opinions on the governing council are appear to be diverging as they try to come to terms with surging inflation and signs of a slowing eurozone economy. However, the ECB is in neutral and determined above all to keep inflation expectations anchored and not to permit second round effects from taking place. Although the HICP eased to an annual increase of 3.3 percent from 3.6 percent in March, it is considerably above the ECB inflation target of 2 percent. And M3 money supply growth is more than double its reference value of 4.5 percent. But there are signs of slower growth. For example, business confidence in Germany, Belgium and France all dropped as did the European Commission's economic sentiment index. And retail sales have disappointed as well while German orders and industrial production were down for the latest month.
As always, analysts will scrutinize ECB president Jean Claude Trichet's press conference and especially the key first paragraph and question-and-answer session. The chances are that Trichet will keep up his jawboning against inflation risks, suggesting that the ECB is much more concerned with price developments than with downside risks to the economy.
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