The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

ECB Watch: The future might look rosy but rate rises loom

Alongside the announcement that it was raising its key interest rates by 25 basis points last month, the European Central Bank released the latest set of growth and inflation forecasts prepared jointly by the staff of the ECB and the euro area national central banks. ECB president Jean-Claude Trichet is always at pains to emphasize that these “projections” – which are shown as ranges, rather than point estimates, to reflect the uncertainties associated with past forecasting errors – are published on the responsibility of the staff and are not formally endorsed by the ECB’s executive board or its governing council.

They do, however, constitute one of the key inputs to the ECB’s monetary policy deliberations and they tend to form the basis of the governing council’s “baseline scenario” for where it believes the euro area economy is heading.

The latest projections (see chart), which incorporate upward revisions to the previously projected growth rates for 2006 and 2007 and are broadly in line with forecasts by the European Commission and other international bodies, show real GDP growth remaining quite buoyant at above 2% per annum in 2007 and 2008, albeit less vigorous than in 2006. Given that publicly the ECB sees the eurozone’s potential (non-inflationary) growth rate as being towards the lower end of a 2% to 2.5% range, this might suggest that demand pressures will no longer be building up. This in turn would be consistent with the projected slowing of inflation to a rate in 2008 that meets the ECB’s definition of price stability: “below, but close to, 2%”. Surely then, the ECB will see no need for further rate rises this year.

Alas, not so, for a number of reasons. First, in making the projections, the staff have factored in an assumption, based on forward money market rates, that three-month rates will average 4% in 2007, which would imply an average over the year of more than 3.75%

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree