ECB WATCH: Higher 2010 Inflation, GDP Won't Prompt Rate Move

9th Jun 2010 13:20

By Nina Koeppen Of DOW JONES NEWSWIRES FRANKFURT (Dow Jones)--European Central Bank President Jean-Claude Trichet on Thursday will defend the ECB's turnaround on buying sovereign debt and present fresh economic projections for the euro zone. With the ECB expected to keep its benchmark rate unchanged at Thursday's Governing Council meeting, economists said the focus will be on the subsequent press conference and the new economic forecasts. The ECB also is likely to extend its special liquidity operations. With risk aversion again on the rise, banks are parking piles of cash at the ECB instead of lending it to their peers. Also, some interest rates have been creeping higher in money markets. Economists predict the ECB will extend its generous liquidity provisions for euro-zone banks beyond June. Thursday's meeting will be the last before the ECB's mammoth EUR442 billion tender of 12-month funds expires July 1. The ECB is expected to stick to its current tender arrangement for three-months funds--offering unlimited cash at a fixed rate. It may also announce another six-month refinancing operation. "There will be significant upward revisions to the ECB's projections for real gross domestic product and especially inflation in 2010," said Nick Verdi, an economist at Barclays Capital. The 2011 outlook should be largely unchanged. Twice a year, staff at the ECB and the 16 national central banks--known as Eurosystem--prepare economic projections for the region that also influence the policy debate at the ECB's policy-setting Governing Council. "We would look for the 2010 inflation projection to be revised significantly higher, to about 1.5% from 1.2% previously, reflecting the effect of the weaker euro and new administered price increases," Verdi said. As of Wednesday, the euro has fallen to $1.1970 from a high of $1.4580 in mid-January. That makes dollar imports, such as oil and raw materials, more expensive for companies and households in the euro zone. Recognizing a pickup in the euro zone's economic activity in the second quarter of this year, Eurosystem staff on Thursday will also upgrade their GDP projections. "We would expect the 2010 real GDP midpoint projection--which was 0.8% in March--to be revised up to about 1%, while leaving the 2011 projection largely unchanged" at round 1.5%, Verdi said. Stronger economic growth and inflation are unlikely to prompt the ECB to increase interest rates any time soon. Most economists in a Dow Jones Newswires poll don't expect the ECB to lift rates before mid 2011. All of the 46 economists in the poll said the ECB will keep its benchmark rate unchanged at 1% Thursday. Trichet will probably downplay a more upbeat economic outlook for the euro bloc, pointing to a high level of uncertainty in financial markets, RBS economist Silvio Peruzzo said. Below are the results of the Dow Jones Newswires rate poll: 2010 2010 2010 2011 2011 June 10 3Q 4Q 1Q 2Q MODE 1.00% 1.00% 1.00% 1.00% 1.00% High 1.00% 1.50% 1.75% 2.00% 2.25% Low 1.00% 1.00% 1.00% 1.00% 1.00% Banca Intesa S. 1.00% 1.00% 1.00% 1.00% 1.25% Bankhaus Lampe 1.00% 1.00% 1.00% 1.00% 1.00% BayernLB 1.00% 1.00% 1.00% 1.25% 1.50% BHF-Bank 1.00% 1.00% 1.00% 1.25% 1.50% BNP Paribas 1.00% 1.00% 1.00% 1.00% 1.00% BoA-ML 1.00% 1.00% 1.00% 1.25% 1.50% BoI 1.00% 1.00% 1.00% ---- ---- BremerLB 1.00% 1.50% 1.75% 2.00% 2.25% CECA 1.00% 1.00% 1.00% 1.25% 1.50% Commerzbank 1.00% 1.00% 1.00% 1.00% 1.00% CSFB 1.00% 1.00% 1.00% 1.00% 1.00% Danske Bank 1.00% 1.00% 1.00% 1.00% 1.00% DekaBank 1.00% 1.00% 1.00% 1.00% 1.00% Dexia 1.00% 1.00% 1.00% 1.00% 1.25% DZ Bank 1.00% 1.00% 1.00% 1.00% 1.50% Erste Bank 1.00% 1.00% 1.00% 1.25% ---- Fortis 1.00% 1.00% 1.00% 1.25% 1.50% Goldman Sachs 1.00% 1.00% 1.00% 1.00% 1.25% Helaba 1.00% 1.00% 1.00% 1.00% 1.00% HSBC Trinkaus 1.00% 1.00% 1.00% 1.25% 1.50% HWWI 1.00% 1.00% 1.00% 1.00% ---- ING 1.00% 1.00% 1.00% 1.00% 1.00% JPM 1.00% 1.00% 1.00% 1.00% 1.00% Julius Baer 1.00% 1.00% 1.00% 1.00% 1.00% KBC 1.00% 1.00% 1.00% 1.00% 1.00% La Caixa 1.00% 1.00% 1.00% 1.00% 1.25% LBB 1.00% 1.00% 1.00% 1.00% 1.25% LBBW 1.00% 1.00% 1.00% 1.00% 1.00% Natixis 1.00% 1.00% 1.00% 1.00% 1.00% Nomura 1.00% 1.00% 1.25% 1.50% 1.75% Nordea 1.00% 1.00% 1.00% 1.00% 1.25% NordLB 1.00% 1.00% 1.00% 1.00% 1.25% Postbank 1.00% 1.00% 1.00% 1.25% ---- Rabobank 1.00% 1.00% 1.00% 1.00% 1.00% RBoS 1.00% 1.00% 1.00% 1.25% 1.50% RZB 1.00% 1.00% 1.00% 1.00% 1.00% Santander 1.00% 1.00% 1.00% 1.25% 1.50% Sarasin 1.00% 1.00% 1.00% 1.00% 1.00% SEB 1.00% 1.00% 1.00% 1.25% 1.50% SocGen 1.00% 1.00% 1.00% 1.00% 1.00% UBS 1.00% 1.00% 1.00% 1.25% 1.50% UniCredit/HVB 1.00% 1.00% 1.00% 1.00% 1.00% VoeB 1.00% 1.00% 1.00% 1.25% 1.50% Vontobel 1.00% 1.00% 1.00% 1.00% 1.00% Wermuth AM 1.00% 1.00% 1.00% 1.00% 1.00% WestLB 1.00% 1.00% 1.00% 1.00% 1.00% (Nina Koeppen writes about the European Central Bank and European economy for Dow Jones Newswires in Frankfurt. She has worked as a financial journalist for eleven years, covering central bank policy, economics, foreign exchange, debt and equity markets. She can be reached at +49 69 29725 509 or by email: [email protected]. Katrin Haertel in Frankfurt conducted the interest rate poll.) TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments (END) Dow Jones Newswires June 09, 2010 08:20 ET (12:20 GMT)