Highlights
As expected, the ECB increased its policy interest rate by 25 basis points to 2.75 percent. The move had been well telegraphed in advance given the grossly over-target increases in inflation and M3 money supply. Flash harmonized index of consumer prices for May was up 2.5 percent, far above the ECB's target ceiling of 2 percent while M3 money supply (as measured by the three month moving average, the Bank's favored measure) shot up 8.4 percent for the three months ending in April. The ECB's target for M3 growth is 4.5 percent. Sentiment has been growing increasingly optimistic in the EMU as evidenced by robust retail sales and an improvement in first quarter GDP growth. Although the International Monetary Fund has cautioned the ECB to go slowly in increasing rates, the Bank's focus on inflation in the medium term is expected to allow for several more rate increases. In his press conference, ECB president Jean Claude Trichet said

"At today's meeting, we decided to increase the key ECB interest rates by 25 basis points. This decision reflects the upside risks to price stability over the medium term that have been identified through both our economic and monetary analyses. The further withdrawal of monetary accommodation will thus contribute to ensuring that longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. As stressed on previous occasions, such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. Overall, also after today's increase, the key ECB interest rates are still low by historical standards, liquidity is ample and our monetary policy remains accommodative. Given the outlook for price developments and the dynamism of money and credit growth in the euro area, we will continue to monitor closely all developments to ensure price stability over the medium and longer term."

President Trichet then went on to outline the economic outlook from the Bank's perspective. He said

"All the main indicators of economic activity that have recently become available are positive. According to Eurostat's first estimate, on a quarter-on-quarter basis, real GDP grew by 0.6% in the euro area in the first quarter of 2006, compared with 0.3% in the previous quarter, with domestic demand making a significant contribution. The expected re-acceleration of real GDP growth in the first months of 2006 has thus materialised, confirming our view that economic growth is broadening and becoming more sustained. This assessment is further supported by information on activity in the second quarter - such as various confidence surveys and indicator-based estimates - which continues to be encouraging.

"Looking further ahead, the conditions are in place for growth in the euro area to remain close to its trend potential rate, despite the impact of the rise in oil prices. Growth in the economies of the euro area's main trading partners remains robust, providing support for euro area exports. Strong investment growth is expected to continue, benefiting from favourable financing conditions, corporate balance sheet restructuring, and gains in earnings and business efficiency. Consumption growth should continue to strengthen gradually over time, in line with developments in real disposable income, as the labour market situation gradually improves."

The ECB meets twice a year outside of its home in Frankfurt. This meeting was held in Madrid, Spain.

2006 Release Schedule

Released On: 1/12 2/2 3/2 4/6 5/4 6/8 7/6 8/3 8/31 10/5 11/2 12/7 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov