Interest rates should remain unchanged till March 2009

In spite of the oil price decrease, the inflation in the Euro-zone remains high: 3,8 % over one year in August, twice the objective of the ECB. Oil and food supply fed the rise in prices. To restore the purchasing power of the households, labor unions are demanding high wage increases, as in Germany, and the risk of uncontrolled prices remains high for the ECB.
 

Tomorrow the ECB is going to maintain unchanged the main rates and to wait until next year that inflationary risk disappeared before to lower its main rates to help our economic growth.

The main rate of the Euro-zone is going to stay at 4,25 %, according to the economists questioned by the news agency Dow Jones Newswires.

These tensions on the prices prevent the central Bank from lowering its rates to help the poor economic growth. The Organization for the cooperation and economic developments (OECD) reviewed on Tuesday its forecasts of growth for 2008, at 1,3 % against 1,7 %, and estimated that the Euro-zone is closer to the recession than the United States. The slowing down of the situation should however push the inflation in more comfortable zones ", estimates the Organization. The ECB may then lower its main rates and ease credit access.

On Thursday, the President of the monetary institution Jean - Claude Trichet should remain strict, but will recognize that the economy enters a phase of weakness. He should announce a review of the growth forecasts for 2008 and 2009, estimates Alexander Krüger, Analyst in Bankhaus Lampe.

The forecasts about inflation should remain on the other hand identical, so 3,4 % this year and 2,4 % in 2009. " The probability of a decline of interest rates in the next months are close to zero ", estimates Mr Krüger.
 

We will have to wait 2009 for any interest rate decline. A short majority of about forty economists questioned by Dow Jones Newswires do think of a status quo till the end of the first quarter. They are more to bet on a rate decline for the end of June 09.

In the meantime, the political pressures could become intensified as the countries of the Euro-zone sink into the crisis. On Monday, Minister of Finance Christine Lagarde again pleaded for a dialogue between European countries and ECB, a demand that the ECB views as a risk for its independence.

Bertrand Le Mire