The ECB left its main refinance rate unchanged at 3.25%, in line with the broader what the market widely expected. The bank was unlikely to engage in a back to back rate hike following the rate increase in October, however, president Trichet will likely signal for a rate hike in December by utilising the phrase (strong vigilance) at the press conference at 13.30 GMT.
Although inflation has eased, the bank may still see upside risks to price stability and will warn against liquidity, falling capacity and inflationary risks from fiscal policy (German VAT). The tightening will thus continue through to 1Q07 with the trajectory thereafter very much data dependent.
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