30 April 2001, 15:32 FOCUS ECB May, June rate cut hopes diminish after unexpected M3 jump
FRANKFURT (AFX) - An unexpected increase in euro zone M3 growth for
March means prospects that the European Central Bank will cut interest
rates in May or even June are now fast diminishing, economists said.
They said the 5.0 pct year-on-year rise in March M3 was an
"unpleasant surprise", as the market had been expecting a consensus
figure of 4.3 pct and was up sharply on February's figure of 4.7.
The ECB defines 4.5 pct as a reference value for M3 growth and
economists had expected a fall below this number to add further
pressure for the ECB to cut interest rates in the coming months.
"Given that the anticipation of slower M3 growth was an integral
part of expectations of an ECB rate cut soon, these expectations were
dampened today", said Holger Fahrinkrug at UBS Warburg.
"It's a fairly disappointing number", said Guillaume Menuet at
4Cast. "The only good news is that credit to the private sector
continued to ease, although even that is by less than we expected", he
added.
Credit to the private sector grew by 9.2 pct, compared with 9.6 pct
in February.
He said the numbers have confirmed the belief the ECB will stick by
its wait and see stance in the next months.
"We have yet to finalise whether they will cut rates by 0.25 pct in
June or July, but it is looking very increasingly like the latter."
Michael Schubert, economist at Commerzbank, said the numbers will
force him to change his forecast for the ECB to cut rates in May.
"Up until now we had been expecting the ECB to cut rates in May,
but in the light of these figures we are going to have to reconsider
our forecast", he said.
Schubert added it is too early to say exactly what components have
been responsible for the sharp March jump in monetary growth.
"The rise could be due to seasonal effects, but doubtless foreign
investments have placed a lot of money on the monetary components in
the euro zone".
Economists added the figures for March are especially
disappointing, as they undermine hopes that risks to price stability
from the first pillar of the ECB's policy -- monetary growth -- were
now disappearing.
ECB policy makers reiterated last week that it will take some time
yet for HICP inflation to dip to the reference value of 2.0 pct, after
preliminary German and Italian April CPI figures came in higher than
expected.
Both ECB president Wim Duisenberg and chief economist Otmar Issing
have said they do not now expect inflation to fall below the 2 pct
level this year.
"For the ECB the arguments for an interest rate cut from the first
pillar have dissipated", said Alexander Boeter at Deutsche Bank.
"Combined with the price tensions in the euro zone, it is not to be
expected that interest rates will be cut in the coming weeks", he said.
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