ECB Monetary Policy: Tightening To Peak At 4.25%?

April 2007 | Economic Analysis

We forecast that the European Central Bank (ECB) is likely to increase its benchmark interest rate twice by 25bps to 4.25% by the end of 2007. Yet, despite the risk of inflationary pressures in the eurozone over the medium term, we believe the central bank's current tightening cycle is likely to peak thereafter (yet with the real risk of a third hike to 4.50%), on the back of ongoing euro strength, a slight slowdown in economic growth and lower import price inflation.

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