Laying the groundwork for policy loosening

At the press conference following his final meeting as ECB President, Jean-Claude Trichet will strike a more downbeat tone, suggesting that interest rate cuts are not far off. We are still pencilling in cuts in December and March, but they might easily come sooner. Otherwise, the Bank might increase its support for the commercial banks by offering more long-term funding, perhaps at maturities of up to a year. However, hopes that the ECB might fund a radically enlarged EFSF to bail out indebted economies are likely to be dashed, with the President stressing that the boundaries between fiscal and monetary policy must not be blurred.