David Brown Rates Quotations

There is a multiplicity of reasons why the ECB has eased again and by so much. Critically the euro zone fundamentals have been crying out for lower rates for quite some time, with growth momentum slowing in the EMU area, Germany close to a double dip recession and inflation set to slow dramatically next year.

There is a multiplicity of reasons why the ECB has eased again and by so much, ... Critically the euro zone fundamentals have been crying out for lower rates for quite some time, with growth momentum slowing in the EMU area, Germany close to a double dip recession and inflation set to slow dramatically next year.

We believe the hawkish hints coming from the ECB and the potential time constraints posed by the prospect of softer fundamentals further ahead mean the race is on to get rates up as soon as possible.

The only real debate for UK rates now is timing and whether the MPC will pre-empt market expectations for a February cut with an earlier move.

We think that relative softness in the euro zone recovery next year combined with inflation falling below two percent, will leave the ECB stuck on 2.5 percent rates for a considerable period.

These are the sort of numbers that should give extra leverage to the ECB (European Central Bank) to keep pressing rates higher, but we still believe the benign inflation picture will force them to adopt a softly, softly approach to tightening this year.

The bias to higher rates remains intact, but will stay a threat rather than a reality until stronger recovery surfaces.

These numbers will be a fillip for the European Central Bank, who will be looking at the stronger recovery tone in Germany as leverage to justify higher rates ahead.

In addition, the earnings from securities purchased in 2005 and the first quarter of 2006 added to profitability, but slowed growth in the net interest margin. We continue to employ hedging strategies to protect net interest income should short-term interest rates decline.