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ECB on hold until Q4 but inflation boosts calls: Reuters poll

By Jonathan Cable

LONDON (Reuters) - The European Central Bank will hold fire on raising interest rates until at least October, according to a Reuters poll of economists who sound increasingly at odds with markets, which expect a hike sooner.

The Reuters poll of over 80 analysts, taken this week, saw a consensus view that the first hike from 1.0 percent would come in the fourth quarter, but with inflation running above the ECB'S target -- and likely to jump higher on soaring energy prices -- expectations for an earlier hike are growing.

None of the 82 analysts expected the central bank to raise rates when it meets on March 3, although 21 of 81 economists polled now see a hike in the third quarter, up from the 16 of 79 in a poll taken earlier this month.

While this consensus seems to be edging slowly toward a sooner rate hike, it is still a far cry from expectations derived from money markets which have priced in a 25 basis point increase by August, and a further similar move by November.

"As the economic recovery in the core European countries gathers pace and HICP inflation stays above 2 percent for at least three quarters of 2011, the current stance of monetary policy is no longer adequate," said Gernot Griebling at LBBW.

U.S. crude oil futures climbed to 2-1/2-year highs on Wednesday on fears that output disruptions in Libya may spread to other Middle East oil producers while rising food and clothing prices have also added pressure.

The ECB has kept rates at a record low since May 2009 to bolster an economy that was mired in recession but recent signs of a concerted upswing have focused its attention on keeping inflation closer to the two percent target ceiling.

Data suggests the 17-nation bloc's German-led recovery is spreading to peripheral members but that recovery is coming at a cost, with consumer prices rising 2.4 percent in January. Inflation is not seen slipping below target until early next year.


Median forecasts see interest rates rising to 1.25 percent in the final three months of this year and then by 25 basis points in each of the following three quarters, the same as in the poll taken earlier this month.

"We think that the central bank will raise rates for the first time in September of this year, but recent data and hawkish comments from officials suggest that the balance of risks to our view is tilted toward an earlier rate increase," said Nick Kounis at ABN AMRO.

ECB Governing Council member Yves Mersch is the latest official to strike a hawkish tone over recent days, confirming on Tuesday that the central bank is moving toward a tightening bias.

Mersch's comments echoed earlier statements from Nout Wellink, Lorenzo Bini Smaghi and Juergen Stark that suggested the ECB might move its risk assessment toward seeing upside risks from the current view of balanced inflation risks.

Across the Channel, minutes from the Bank of England's February rate-setting meeting suggest it might raise Britain's interest rates from their own record low sooner than previously thought as it battles to bring under control inflation that is running at more than double its two percent target.

(Polling by Bangalore Polling Unit; editing by Stephen Nisbet)