Rate hike unlikely to be the first of many

The recent batch of reasonably encouraging data, coupled with a raft of hawkish comments from various Governing Council members, suggests that the ECB will go ahead with its plan to raise interest rates in April. But the key issue will be whether President Trichet provides any indications as to whether this marks the beginning of an aggressive tightening. While April’s probable hike is unlikely to be a one-off, we doubt that the Bank will signal that this will be the first in a long series. Meanwhile, we expect M. Trichet to re-emphasise that conventional and unconventional measures are independent, and that the latter may remain in place for a little while yet.