Market concerns over an early ECB interest rate hike eased today on signs that inflationary pressures are moderating in the euro zone and dovish comments from an European Central Bank policymaker.
Money supply growth slowed for the first time in four months, to a 6.4 per cent annual rate in February from 6.6 per cent the prior month, the ECB said in its M3 latest report. Analysts had expected M3 to advance by 6.7 per cent.
Michael Schubert, economist at Commerzank in Frankfurt
Growth in private sector loans, which has been increasingly robust on the back of historically low official interest rates, also eased to 7.2 per cent from 7.3 per cent annual rate in January with house loans and home purchase loans holding steady.
The latest data take some pressure off the ECB to consider raising its official refinancing rate.
"It gives the ECB some additional time to see a clear broadening of economic recovery before it does anything on rates," said Mr Michael Schubert, economist at Commerzbank in Frankfurt.
This view was reinforced by ECB Governing Council member Erkki Liikanen, who said he was comfortable with inflationary developments in the 12-nation euro zone.
"At the moment, the inflationary pressures are quite well in check," he said at a news conference. "At some point, the interest rate level will be reviewed but I cannot tell you when."
Expectations for price stability are being built into wage and price developments, he said. Additionally the euro's advance is helping dampen price pressures, giving the ECB some leeway on rates.
"Although the euro appreciation has depressed exports, it has also helped moderate inflationary pressures in the euro area and in this way made it possible to hold interest rates at a very low level," Mr Liikanen said in a statement releasing the Bank of Finland's latest economic forecasts.