PARIS (MNI) – European Central Bank President Jean-Claude Trichet
Thursday appeared to rule out an interest rate hike in June, and now
most speculation is focusing on an increase in July.

But not all. Some analysts think the ECB is keeping its options
more open than that.

Below are excerpts of analysts’ comments:

CEDRIC THELLIER, Natixis: As the ‘strong vigilance’ was not
mentioned, we guess the ECB may not hike rates as soon as next month.
Nevertheless, Trichet’s words remain ‘hawkish’ and there is no doubt
that inflation projections of the staff will be revised upwards in June
(probably around 2.6% vs. 2.3% in March). Consequently, a further
tightening (25 bps) should occur in July. Thereafter, as positive base
effects from oil prices would fade somewhat from Q3-11 and GDP growth
would remain sluggish, we favour a scenario with status quo at 1.50% for
the main refi rate until the very end of the year.”

FREDERI DUCROZET, Credit Agricole: There may have been several
reasons why the ECB decided not to pre-announce a rate hike in June. The
most important and definite one: the behaviour of inflation
expectations. I was expecting Trichet to comment on the latest survey of
professional forecasters. Asked to comment on this, he hinted at a solid
anchoring of inflation expectations. In my opinion, this suggested that
inflation expectations have remained stable at around 2%, in line with
price stability. If anything, I think that is the main reason why the
ECB decided to wait another month to signal its “strong vigilance.”

THOMAS AMEND, HSBC Trinkaus: There are some people who had
expected the ECB might signal today that it would hike rates in
June. I think this has not happened. The usual signal words didn’t come
and if you read between the lines then you also would not say that there
will be a hike in June. We expect at the moment that the next move will
come in July and that the ECB will use the month of June to prepare the
markets for it. June is also a good moment because the ECB will have the
updated forecasts at its hand. It will then also have to decide how to
proceed with its liquidity management. I would say the ECB is not yet
decided how to proceed there. It will use the next four weeks to see to
to what extent a normalisation will take place in money markets.

CARSTEN BRZESKI, ING: The ECB looks determined to deliver further
rate hikes. Even if Trichet refuted the concept of “normalisation” at
the press conference (probably to avoid questions on the level of a
normal rate), the negative real interest rate seems to be a thorn in the
ECB’s side. More rate hikes are in the offing this year. At present, the
recovery of the Eurozone economy is still on a solid footing, despite
sluggish growth and dire prospects in the periphery. Rising interest
rates, higher energy prices and a strong euro exchange rate, however,
should soften the recovery in the second half of the year. This implies
that the window of opportunity for a normalisation of interest rates
will not be open forever. Therefore, we still feel comfortable with our
call of a next ECB rate hike in July.

JENS KRAMER, Norddeutsche Landesbank: We were not surprised that
Trichet sounded rather moderate today. We still had the previous
statement in mind, where he had said that this was not autmatically the
start of a series of rate hikes. Thus, we did not expect that he would
signal today an interest rate hike already for June. The market had
obviously viewed this differently. The market reactions regarding
euro-dollar and also the Bund future show that no small number of
financial market players had expected that he would prepare the next
rate hike for June today. This would not have been a smart move. Despite
higher headline inflation it is in my view a good thing that he signaled
to the markets that the ECB will raise rates very calmly and in a
measured way.

MARK MILLER Lloyds TSB: Obviously the markets have reacted quite
progressively to the absence of the “strong vigilance” language in the
statement…I think going forward into next month, that the likelihood
of strong vigilance language builds even further. In particular, it’s
likely that the ECB will have to nudge up its CPI inflation forecasts
for 2011. So, that might be a significant development. And, I think that
we are looking at the next quarter point rate rise potentially to occur
in Q3, most likely in July or August.

KEN WATTRET, BNP Paribas: “While the economic news flow merited a
rate hike in June, from a tactical perspective we took the view that
July was the more probable option (though it was a very close call). A
key element of that judgement was that by delivering the first two rate
increases in such close proximity, markets might over-react, fearing an
aggressive tightening cycle, pushing the exchange rate up in the
process. With wage growth contained, and money and credit growth rates
low, there was no need for the ECB to take the risk….As long as the
problems in the periphery are not a systemic concern for the financial
sector, the ECB will press on with the adjustment of its conventional
policy, from its present accommodative stance (exceptionally so in real
terms).”

JUERGEN MICHELS, Citigroup: “The ECB used the code-phrase
‘monitoring very closely’ and not ‘strong vigilance’. This was in line
with our forecast. According to President Jean Claude Trichet, the
Governing Council took the decisions of today’s meeting unanimously. The
pattern of the previous rate hiking cycle suggests that after using
‘monitoring very closely’, the ECB is likely to escalate its language to
‘strong vigilance’ in June and is likely to go ahead with the next hike
in July. The ECB highlighted that current interest rate are ‘very
accommodative’, suggesting that further rate hikes will follow.”

HOWARD ARCHER, IHS Global Insight: The ECB’s decision to keep
Eurozone interest rates at 1.25% at its May policy meeting was
completely as expected, given that it had only raised them from 1.00% in
April. All attention was focused on any indications as to when the ECB
is likely to hike rates again and July now looks the prime candidate.
Having said that, ECB President Jean-Claude Trichet was careful to keep
the ECB’s cards close to its chest regarding the timing of future
interest rate hikes as he refused to comment in his press conference on
the fact that the markets are expecting another 25 basis point hike by
July.

MARCO VALLI, UniCredit: As widely expected, today the ECB left the
refi rate at 1.25%. The market was looking carefully for hints about the
timing of the next rate hike, and Trichets message was that the ECB is
not ready to speed up the pace of the tightening cycle. The reference to
very close monitoring, the same as last month, should be read as a
sign that the central bank will most likely hold its fire in June, and
probably pull the trigger again in July…Apart from the eagerly-awaited
near-term policy message, the introductory statement was virtually
unchanged compared to April, both on the economic and monetary analysis.
Moreover, as we expected, the Q&A session did not provide any hint
either on the SMP or the liquidity strategy. Trichet actually said that
the GC did not discuss this latter topic at today’s meeting.

JAMES SHUGG, Westpac Banking: We didn’t get the key “vigilance” term,
but [Trichet] did talk
about inflation risks being to the upside. Although they do take each
meeting as they come, you would have to see some significant upside
surprises on inflation for them to move as soon as June. But I think
that July is probably a live one, [but then] that’s it. In October, by
the time we would expect to see a third increase, we think that global
growth will really be disappointing.

[TOPICS: M$$EC$,MGX$$$,M$$CR$,M$X$$$]