The ECB Shadow Council decided with a majority of ten members to recommend that the ECB leave its key rate unchanged at four percent at the next policy meeting on April 10. Five members voted in favour of a rate cut of 25 basis points instead. This was down two from last month’s seven votes for a cut.
Agnès Bénassy-Quéré and Marie Diron joined those favoring unchanged rates. They explained that inflation risks had become more prominent over the last five weeks. Many members had expected inflation to peak early in the year and then to gradually decline. Instead, headline inflation reached a new high of 3.5 percent in March. Several members argued that there was now a substantial risk that the public’s inflation expectations could become unanchored.
|CONSENSUS FORECAST OF THE ECB SHADOW COUNCIL|
(Last month's forecast in parentheses)
|Year||HICP-Inflation in %||GDP-Growth in %|
|2008||2.7 (2.6)||1.5 (1.5)|
|2009||2.0 (1.9)||1.5 (1.8)|
Forecasters: J. Alzola; J. Cailloux; J. Callow; S. King; J. Fels; T. Mayer; V. Riches-Flores; J.M. Six
Most forecasters have assumed that the ECB key rate will be 4.0 percent for the next three months and decline to 3.75 percent by late summer.
The prevailing view was that the economy of the euro area has been holding up surprisingly well, so far. However, most members do expect a further slowdown, which would eventually dampen inflation pressures. Some members, arguing for a rate cut, fear that we are just at the very beginning of the slowdown. These members expect an economic slump brought about with some lag by the global slowdown and the soaring euro. Members revised up their average inflation expectation for this year from 2.6 to 2.7 percent. Growth expectations for next year were revised downward again significantly to 1.5 percent, after an unchanged 1.5 percent this year.
|INDIVIDUAL VOTES (Recommended rate change in percentage points)|
|Josè Alzola||Citigroup, London||*)|
|Agnès Bénassy-Quéré||CEPII, Paris||no change|
|Willem Buiter||London School of Economics and Goldman Sachs||no change|
|Jacques Cailloux||Royal Bank of Scotland, London||no change|
|Julian Callow||Barclays Capital, London||no change|
|Giancarlo Corsetti||European University Institute, Florence||no change|
|Marie Diron||Ocford Economics||no change|
|Joachim Fels||Morgan Stanley, London||cut 25 bp|
|Daniel Gros||Center of European Policy Studies (CEPS), Brussels||no change|
|Stephen King||HSBC, London||cut 25 bp|
|Thomas Mayer||Deutsche Bank, London||cut 25 bp|
|Gernot Nerb||Ifo-Institute, Munich||*)|
|Thorsten Polleit||ECB-Observer, Frankfurt||no change|
|Véronique Riches-Flores||Société Générale, Paris||cut 25 bp|
|Jean-Michel Six||Standard & Poor's, London||cut 25 bp|
|Angel Ubide||Tudor Investment Corporation, Washington D.C.||no change|
|Charles Wyplosz||Graduate Institute of International Studies, Geneva||no change|
*) Of the two non-voting members at this meeting José Alzola argued in favour of a rate cut, Gernot Nerb in favour of unchanged rates.
April 7, 2008
Norbert Häring, Frankfurt Olaf Storbeck, Düsseldorf