Econoday Report: ECB Announcement 3, 2005

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2005 U.S. Economic Events & Analysis

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ECB Announcement

Definition
The European Central Bank Governing Council consists of 16 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

Highlights
Despite the pickup of hawkish rhetoric, the European Central Bank Governing Council left its key interest rate unchanged at 2 percent, where it has been since June 2003. Inflation has remained stubbornly above the Bank's 2 percent ceiling while M3 money supply growth has soared to 8.2 percent, providing ample liquidity. The ECB's target for M3 growth is 4.5 percent. Recent indicators show that the economy is stabilizing and improving. Analysts suggest a rate increase could come soon and will pay close attention to ECB chairman Jean-Claude Trichet's comments at today's press conference for any further hints about the central bank's view on how inflationary pressures are evolving. The ECB is also known to be concerned about an increase in inflation expectations and "second round effects" as higher energy costs force workers to push for higher earnings.

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 growth rate. The Bank has had trouble controlling both and continues to tread a fine line while ignoring sub-par economic growth in favor of forcing inflation below its ceiling. October HICP was 2.4 percent. Money supply growth soared to 8.2 percent for the three months ending in October when compared with the same three months a year earlier. Today's increase of 25 basis points is the first since June 5, 2003. The new rate is 2.25 percent.

Data Source: Haver Analytics

2005 Release Schedule

Released On: 1/13 2/3 3/3 4/7 5/4 6/2 7/7 8/4 9/1 10/6 11/3 12/1

Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

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