The ECB is likely to soften its tone markedly at this month’s press conference amid signs of a significant deterioration in economic activity. With inflation risks probably no longer deemed to be on the upside, the chance of further interest rate hikes has evaporated and a reversal of earlier increases now seems more likely. We have pencilled in 25bp interest rate cuts in December and March. Otherwise, the Bank is likely to pledge further support for the banking sector in the form of longterm loans. But President Trichet might well hint that the ECB is unwilling to continue buying Italian and Spanish government bonds indefinitely.