| Consensus rate and forex forecasts: economists divided on ECB's next move |
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| 10/06/2007 | |
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Will the European Central Bank (ECB) raise interest rates beyond 4%? Our panel of economists is divided on the question. After the meeting of central bank governors May 10, Jean-Claude Trichet, president of the ECB made use of the terms "strong vigilance" and "risks to price stability." Those comments were followed by a 25 basis point hike in Europe's refinance rate. On June 7 the ECB raised the refinance rate to 4%, suggesting more tightening may lay ahead. These moves have reinforced the camp of economists forecasting another hike within six months. The consensus median forecast for Europe stands at 4.25% in November. (The survey was conducted before the ECB's last rate hike.) Indeed, the performance of Europe's economy in the first quarter characterised by a 3.1 jump in GDP year-over-year, further supports strong euro advocates. "The series of economic indicators in a wide range of countries confirms the positive sentiment of Europe's private sector, suggesting that growth will remain on track in the short term," says Crédit Agricole. Monetary supply Indications are that inflation will remain tame under the targeted 2% level. On the inflation front, the economists point to an interesting development. Christian Noyer, the governor of the Bank of France, has questioned the usage of M3 as a reliable measure in the monetary policy deliberations of the ECB. M3 has been growing at a respectable rate (11% in April and March from 10% in February) and so any suggestion that it be removed from the deliberations of the ECB may weaken the thesis of those in favour of further tightening. Looking at foreign exchange, the ever-resilient euro could play a crucial role in capping inflation, especially on the heels of a slowing US economy. Our panel anticipates little change in the euro-dollar rate from the previous month and the average forecast expects an exchange rate of 1.35 for the rest of the year. Two of our surveyed economists (BNP Paribas and UBS) have reduced their anticipation of lower rates in the US. The average forecast for the federal funds rate remains unchanged at 4.75% at the end of November.  EL |
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Articles of the same Serie : Consensus
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