Econoday Report: ECB Announcement 7, 2008

2008 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 8/7/08

Change
Actual	0bp
Previous	25 bp

Level
Actual	4.25%

Highlights
As expected, the European Central Bank left its key policy interest rate at 4.25 percent. The ECB increased their key rate by 25 basis points at its July meeting. The spread between U.S. and EMU interest rates is now 2.25 percent but there is only 75 basis point spread with the Bank of England. The latest flash reading for the harmonized index of consumer prices showed that inflation soared by 4.1 percent in July, the highest rate since statistics began in 1997. That means that inflation is double the ECB's inflation target of below but close to 2 percent. And June producer prices were up 8 percent on the year. M3 money supply growth however has slowed to 9.9 percent growth, but still far above its 4.5 percent reference rate. Like the Bank of England the ECB is caught between a rock and a hard place - rising inflationary pressures and a rapidly slowing economy. Germany, who is regarded as the engine of growth for the EMU has slowed rather dramatically. Manufacturing orders were down for the seventh consecutive month while retail sales sank 2.8 percent in June.

In contrast with the Bank of England, the ECB makes its decisions by consensus and does not publish minutes after its meetings. Rather, to explain the governing council's thinking, ECB president Jean Claude Trichet holds a press conference about 45 minutes after the meeting's conclusion. At that time, he reads a prepared statement and then responds to questions from the press.

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. In July, flash HICP soared by 4.1 percent after rising by 4.0 percent in June. Money supply growth has eased from its peak of 12 percent in October and November of 2007 but still expanded at a rate of 9.9 percent for the three months ending in June when compared with the same three months a year earlier.

Data Source: Haver Analytics | Consensus Data Source: Market News International and Thomson Financial

2008 Release Schedule

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