PARIS (MNI) – Most ECB watchers believe that behind President
Jean-Claude Trichet’s reaffirmation Thursday of no “precommitment” on
the future course of monetary policy there were enough hints to conclude
that another interest rate hike is on the cards before the year is out.

In this case, the familiar sequence of updated inflation
projections accompanied by a signal for an imminent hike could be
repeated when the ECB staff’s fresh forecasts are unveiled in September.

Analysts gleaned little from Trichet’s press conference to
indicate how the confrontation between Eurozone finance ministers’
insistence on private sector participation in a new Greek bailout and
the ECB’s adamant opposition to a “default” or “credit event” might be

Following are excerpts of analysts’ comments:

MARTIN VAN VLIET, ING: “All in all, today’s news conference has
made crystal clear that the ECB remains geared towards further monetary
tightening, despite the lingering debt crisis. As such, we continue to
think that the odds are in favour of an additional 25bp rate hike later
this year, with the October meeting a strong candidate. Today’s rate
hike may indeed not be Trichet’s last.”

JOERG KRAEMER, Commerzbank: “ECB President Trichet avoided giving
prospects of further rate hikes. But he did speak of ‘upside’ inflation
risks and described monetary policy as ‘accommodative’. Finally, he
pointed out that the money supply had expanded too strongly in the years
before the financial crisis so that there is still too much money in
circulation. We expect the ECB to raise its key rate by another 25 basis
points to 1.75% early in the fourth quarter.”

MARCO VALLI, Unicredit: “Trichet sent two key messages on the rate
outlook: 1) The monetary stance remains accommodative. Given that risks
to price stability are still seen to the upside, this should imply the
need for further rate normalization in the coming months; 2) The ECB
monitors ‘very closely’ risks to price stability. This is the same
wording used after the April rate hike, meaning that the ECB seems to
target another rate increase in October. Obviously, Trichet stressed
that the central bank does not pre-commit, but if he wanted to signal
the intention to slow down the pace of rate hikes, ‘closely monitoring’
would have certainly done the job.”

KEN WATTRET, BNP Paribas: “We continue to expect that another rate
hike will be delivered in tandem with the next round of staff
projections, i.e. signalling a rate hike in September and delivering in
October, as inflation projections are revised up again…. Our policy
call – a continuation of the ‘quarter per quarter’ normalisation of the
re-financing rate until real rates are no longer negative (to 2.25% by
April 2012) – is highly event dependent. Further evidence of contagion
across markets and a negative feedback loop from the financial sector to
the real economy could knock this forecast off course. But this remains
the risk scenario rather than the central scenario in our judgement….
Regarding the PSI, Mr Trichet stated repeatedly that the ECB says ‘no to
selective default’. What this will ultimately mean in practice is not
clear. At this point, there is no sign that the ECB is willing to
capitulate on the issue. But that may have to change, depending on how
political developments evolve on the PSI going forward and the ratings
agencies’ potential response.”

CEDRIC THELLIER, Natixis: “President Trichet repeated that
‘uncertainty remains elevated’ and activity in Q2 will ‘slowdown quite
significantly’. Probably in order to justify this second rate hike, the
tone was still quite hawkish (risks to the medium-term outlook for price
developments remain on the upside; our monetary policy stance remains
accommodative). Nevertheless, we expect the ECB to take more and more
into account the (already mentioned) slowdown in activity and the
elevated uncertainty, suggesting cautiousness and a progressively more
dovish tone. Moreover, HICP inflation should decelerate from now on. All
in all, we expect a quite long status quo for the main refi rate at
1.50%, probably until Q2-2012.”

–Paris newsroom, +331 4271 5540; Email:

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