The ECB could raise rates today to 3%

Although it is already discounted in the value of Euribor, the important thing is not whether the rises, the important thing is to tell us what Trichet.

Let's see what the analysts say.

The analyst at Caja Madrid Juan Antonio Cabrera sees "some signs of strength" in the economic performance of the eurozone and recalls that inflation is at 2.5% year, "well above the target level," so everything seems to indicate that rates will rise. "It's a good opportunity to raise the price of money," he said.

In the same vein is expressed Sofia Rodriguez Rico, Banco Sabadell, which provides further increases in coming months, given that the rates remain below the neutral level, that is the point at which contribute equally to stimulate growth and contain inflation.

"The dynamism of economic activity, the best performance of the labor market and a pillar of monetary policy away from their respective objectives will support this process," said Rodriguez Rico, for which rates could be at around 3.5% to end of the year, 0.25 points more than estimated by Caja Madrid.

The analyst at Royal Bank os Scotland (RBS) Kevin Gaynor also expected to rise and warned that despite the improvement in employment, the current imbalances between demand and supply are accelerating a "worrisome" inflation. In his opinion, one of the ways to contain this trend is a rise in rates.

Cabrera finds this inflationary trend, which comes at a time when 'the European economy pulls well and consumption is accelerating, "and thinks that the ECB must act now," before you pass the time, "since The euro was stronger and increasingly in the United States begins to see a moderation that could ultimately affect the European economy.

Analysts agree that the markets are rising today. In fact, the Euribor, the indicator most often used to set the interest rate on mortgages, rose again in July for the tenth consecutive month and is already in 3546%, the highest level since August 2002.

The sharp hike of crude oil remains an element of concern and the ECB and the European Commission itself have warned of the effects of this second round of price hikes. The barrel of Brent North Sea were urged today to 0.61 euros, to 76.50 dollars, while the Texas sweet light is changed by 75.60 U.S. dollars on the Nymex in New York, 69 cents more than yesterday.

"If the rise in oil prices translates into an increase in inflationary expectations, the central bank should respond with a more restrictive policy," said Rodriguez Rico about this.

For Cabrera, if oil exceeds 80 U.S. dollars could produce a scenario in which growth and inflation would be affected in the same way, so that rising rates might not be the appropriate measure.

In his appearance after the decision last month to keep rates at 2.75%, the ECB president, Jean Claude Trichet, said that the institution will maintain a "close watch" on price stability over the medium term and warned "The risks in anticipation of the behavior of prices remain high and include further increases in oil prices."

An analyst at Londons Newton Investment Management, Charles Whall, believes that the three factors that influence the current cost of crude-political tensions, strong demand and the uncertainties surrounding the supply-continue to exert influence on a joint and "exacerbating the Fear of supply cuts. "

Correct information policy

On the other hand, analysts believe that, faced with criticism arising on other occasions, the information policy of the ECB on monetary decisions have been correct on this occasion and allowed markets to be prepared.

This time, the ECB supenderá the viodeoconferencia planned and will hold a press conference to explain the details of the measure, suggesting that the meeting will have a special content.

Moreover, the very Trichet stressed the need to maintain a "close watch" on inflation, that monetary policy remains accommodative and that interest rates are still at "low levels" in a context of strong growth credit and ample liquidity.

"The raise is totally discounted and does not have to embarrass the market, nor call into question the transparency of the ECB," said Rodriguez Rico. "Trichet made it quite clear. Emphasized that he was going to be very vigilant. It would be a surprise if rates go up," Cabrera said on his part.

The Gross Domestic Product (GDP) in the euro zone grew by 2% in year terms in the first quarter of the year, up three points to 1.7% marked in the previous quarter, in an environment of improvement in consumption, the investments and exports.

The EU executive hopes that the GDP will increase between 0.4% and 0.8% in the second quarter, and between 0.3% and 0.7% in the third. For the quarter, the forecast is the same as on previous occasions, that is, between 0.5% and 1%, which would consolidate the recovery expected this year.

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Written by Carlos Lopez on August 3, 2006 with 0 comments.