ECB to maintain its hawkish stance

At February’s press conference, President Trichet looks set to maintain a fairly hawkish tone, adding to fears that the ECB might raise interest rates later this year and possibly placing further upward pressure on the euro. The ongoing problems in the peripheral euro-zone economies should mean that the Bank will keep open the option of buying more government bonds and offering generous loans to commercial banks. But with annual core CPI inflation at just 1.1% and few signs that inflationary pressures are building, we still think that interest rate hikes remain a distant prospect.