Trichet Signals July Rate Hike With The Words "Strong Vigilance"


Strong Vigilance,” suggests we will see a rate hike in July, number 2 in this tightening cycle.

The euro spiked on the news, but has since fallen off, based on the weaker than expected GDP outlook and other news (Moody’s negative outlook on fringe eurozone defaults).

Trichet indicated that the recovery is still ongoing, but gaining momentum, and that inflation is being pushed higher by commodities and energy.

The ECB has increased growth projections for 2011, and kept them mostly the same for 2012.

Read Trichet’s speech here >

Question time!

Trichet says the ECB is not pre-committed, but strong vigilance means they may raise rates next month. Of course, if things get worse over Greece, or there’s some sort of collapse between now and July, the ECB may stop the tightening cycle. “We’re not signaling any particular pace for our next decision on our interest rates,” Trichet says.

We’re not in favour of restructuring or haircuts. “We call for avoiding any credit event,” Trichet says. This is our position, it has been out position, and “all governments know that position,” Trichet says.


At 8:30 AM ET, ECB President Jean-Claude Trichet will speak to the media on the central bank’s decision to hold rates unchanged, and what it plans to do next.

Expectations are that Trichet will signal another rate hike in July. This would be the second rate hike in this tightening cycle.

The key word to watch for here is “vigilance.” If Trichet moves away from the use of the phrase “very closely” to “vigilance” or “strong vigilance” we’re going to see a rate hike in July, barring any sort of economic disaster in the interim.

The assumption that we’ll see another hike in July is based on the belief that the ECB is now more concerned about inflation in the eurozone’s core, than the difficulties of fringe member states. Germany, the state the ECB is most worried is overheating, just reported some sharply weaker than expected economic data. That fact, along with continued uncertainty over Greece, may hold the ECB’s hand yet again.

“Vigilance,” however, would also signal that the ECB is confident things will be sorted out in Greece by July, according to Societe Generale.

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