ECB to keep euro rate on hold

Analysis

The pause in interest rate increases might be prolonged due to the non-primary crisis and slowing economic growth in the EU, but no rate decrease is on the horizon because – as it is shown by the statistics released by the European Central Bank (ECB) on Friday – corporate loans have not decreased considerably in recent times.

In the Euro-zone, the annual rate of growth of M3 (the broadest measure of money supply in use by Euro-zone nations) stood at 11.3 % in September, slightly lower than the 11.6% in August and the record figure of 11.7% in July. In the meantime, the total amount of loans granted to the private sector was 11.6% higher than last September.

The M3 growth rate has always exceeded 4.5%, the targeted rate by ECB’s interest policy, but ECB finds the current development a priority inflation risk. In the Euro-zone September saw a 2.1% y/y inflation on average, higher than the below -2% rate, which is targeted by ECB, for the first time during the past year.

The higher inflation was directly caused by energy prices; still, the accelerated inflation makes it hardly possible to cut the interest rate, say analysts. According to ECB forecast, economic growth in the Euro-zone will drop from the 2.2% – 2.8 % expected for 2007 to 1.8% – 2.8% in 2008, reaching a level that ECB economists do not consider overheated. (Gazdasági Rádió)

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