European Central Bank President Jean-Claude-Trichet heading into the Bank's headquarters in Frankfurt.

French President Nicolas Sarkozy said last Wednesday that the views on interest rates of the European Central Bank President, Jean-Claude Trichet, were beginning to align with with his opposition to higher borrowing costs.

Sarkozy, who has called for the ECB to take account of the views of Eurozone governments in setting interest rates, told members of his cabinet that comments by Trichet last week showed an "interesting evolution" in his thinking, a government spokesman, Laurent Wauquiez, said.

"The President noted that the fact he put the question of monetary policy on the table was helping move things forward," Wauquiez said of Sarkozy's comments on Trichet. who in remarks last Monday in Budapest left options open regarding the meeting of the Governing Council next Thursday.

Trichet who battled French politicians in the 1990's as president of the Banque de France, is a staunch defender of ECB independence and despite a natural reluctance to avoid giving more material to his compatriot in the Élysée Palace to crow about, the market expects that the Governing Council will not go ahead with its plan to raise the key interest rate to 4.25%.

It's reported that ECB forecasts for eurozone growth and inflation for this week’s meeting are expected to have changed little from June’s projections – signaling that the ECB’s fundamental outlook has not altered much either.

The ECB had forecast growth to slow from a range of around 2.6 per cent this year to 2.3 per cent in 2008. Inflation would be around 2 per cent in both years with a risk that the ECB would not achieve its target of an annual rate “below but close” to 2 per cent.

The market expects the ECB to put its rate plan on hold because of the uncertain credit market outlook but it is expected to maintain the the Eurozone economy is still robust while leaving open the possibility of raising the rate in October.

Figures issued by London-based Dealogic, the data provider, show that the amount of deals delayed or stuck in the pipeline has risen to $470bn. This is made up of $385bn in leveraged loans, $81bn in equity business, including IPOs and rights issues, and $4bn in delayed new bond issues.

Financial services economists should be cautious about allowing their own wishes to slant their outlook and forecast declines from early 2008 or even a peak in the rate tightening.

The era of cheap credit is over and for example, Professor Martin Feldstein in the US is calling for the Fed to cut rates by 1.0%, he also attributes the current crisis to the period of cheap and easy credit since 2001. 

The Bank of England's Monetary Policy Committee is also due to meet on Thursday and expected to leave UK interest rates at 5.75%, even though it also signalled a rate rise in its inflation report in August.