Last Month's ECB Meeting

October 1, 2008

The September 4th ECB statement and press conference conceded a bigger growth slowdown around mid-2008 and one that was not exclusively a reaction to unsustainably brisk first-quarter growth of 2.7% at a seasonally adjusted annual rate.  Otherwise, the statement pretty much stuck to script, predicting a prolonged period of above-target CPI inflation and upside-biased risks to the baseline inflation forecast, warning about sharply higher growth in unit labor costs to come partly because of wage indexation, and maintaining that world growth remains relatively resilient.  Money and credit growth are moderating, but their long period of excessive expansion poses a continuing threat to price stability.  An assertion made back then that officials might regret was that the availability of credit in Euroland had not been affected much by financial market tension.  Trichet in the press conference expected money market tensions to persist and expressed appreciation for the verbal support U.S. officials had given to the dollar.  The euro was trading at $1.4489 at the time, and 3-month euribor rates were still below 5.0%.  The German Dax is 7.5% weaker now than back then. I expect no change to be made tomorrow in the refinancing rate target, which is at 4.25%, but current conditions demand analysts to never say never regarding a surprise cut.  The announcement will be made at 11:45 GMT and be followed 45 minutes later by the press conference.  The Governing Council will meet in Frankfurt.



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