Dear ECB watcher,
Last month, a 61.54 percent of our watchers thought that the interest rate on the main refinancing operations of the Eurosystem should be reduced, 3.08 percent believed that it should be raised and 35.38 percent thought that it should be maintained. The Governing Council of the ECB decided to leave the key ECB interest rates unchanged at its 5 February 2009 meeting.
What should we recommend this month? Here is some information that has become available since then, related to the evolution of the euro area economy:
-In the construction sector, seasonally adjusted production fell by 2.2% in December 2008, compared with the previous month. Compared with December 2007, output in December 2008 dropped by 10.1%.
- The first estimate for the trade balance with the rest of the world in December 2008 gave a 0.7 bn euro deficit, compared with -3.9 bn in December 2007. The November 2008 balance was -5.8 bn, compared with +2.3 bn in November 2007. In December 2008 compared with November 2008, seasonally adjusted exports fell by 0.9% and imports by 3.9%.
- GDP declined by 1.5% during the fourth quarter of 2008, compared with the previous quarter, according to the flash estimate published by Eurostat. In the third quarter of 2008, growth rates was -0.2%.
- In December 2008 compared with November 2008, seasonally adjusted industrial production fell by 2.6%. In November production decreased by 2.2%.
- In December 2008, compared with November 2008, the volume of retail trade remained stable. In November retail trade fell by 0.1%.
- In December 2008 compared with November 2008, the industrial producer price index fell by 1.3%. In November, prices decreased by 2.0%.
- Annual inflation is expected to be 1.1% in January 2009 according to a flash estimate issued by Eurostat. It was 1.6% in December 2008.
- In the third quarter of 2008, the seasonally adjusted gross saving rate of households was 14.4%. It was 14.0% in the second quarter of 2008.The investment rate6 of non-financial corporations was 23.5% in the third quarter of 2008 compared with 23.3% in the second quarter of 2008.
- Seasonally-adjusted unemployment rate was 8.0% in December 2008, compared with 7.9% in November. It was 7.2% in December 2007.
Once again, the question you have to answer is: If you were a member of the ECB's Governing Council, what would you vote at its 5 March 2009 meeting?
A: Raise the interest rate on the main refinancing operations by 25 basis points or more
B: Keep the interest rate on the main refinancing operations at the current 2.00 percent
C: Lower the interest rate on the main refinancing operations 25 basis points or more
Please, notice that, as one of our members points out, we are trying to make a policy recommendation, and not to outguess the ECB Council.
If you want to join this initiative to democratize the ECB watch, please reply A, B, or C.