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Last Updated: Friday, 18 November 2005, 17:22 GMT
Trichet: 'interest rates to rise'
ECB President Jean-Claude Trichet
Mr Trichet's comments were seen as an early announcement
Jean-Claude Trichet, president of the European Central Bank (ECB), has hinted that interest rates could rise soon.

The ECB has maintained interest rates at 2% for five years, but this could soon change, he suggested.

"I consider that the governing council is ready to take a decision on interest rates," he said in a conference speech.

Analysts said his comments amounted to an early announcement of a quarter percentage point rise at the ECB's next policy meeting on 1 December.

"He might as well have just said 'we are going to raise rates by 25 basis points," said Marc Ostwald, a bond analyst with Monument Securities in London.

"What it now means is the market will want to know what Trichet will say about further rate hikes, beyond anything in December, when he testifies on Monday."

The move would affect interest rates in the 12 countries that use the euro, the so-called eurozone.

Several rate hikes ahead

Mr Trichet said the ECB is ready to "moderately augment the present level of intervention rates in order to take into account the level of risks to price stability that have been identified".

Euro notes

"The fact that he is saying 'moderately augment' would appear to suggest that this will be a 25bp rather than a 50bp hike and that future rate hikes may also be limited," observed Ian Gunner, head of foreign exchange research at Mellon Bank.

Commentators say the ECB is likely to raise rates several times in the months ahead to keep the lid on inflation in the eurozone.

"We currently favour a rate hike every three months," said Bob Maes, fixed income strategist with KBC.

Inflation, which stood at 2.5% in October, has been above the ECB's 2% target for nine months.

The move, however, is likely to spark fierce opposition from politicians in some of the biggest EU countries whose economies are still facing a slowdown.

However, recent economic data and forecasts suggest that they are set for a modest recovery in 2006.

A stronger euro

The euro rose from $1.1670 to 1.1780 following Mr Trichet's comments, before falling back to around $1.1760 in late European trading - a level many analysts said was a better reflection of reality.

"It's a very strong signal and positive for the euro," said Niels Christensen, foreign exchange strategist at Societe Generale.

The euro might rise further against the dollar in the near future, predicted Mr Gunner, though he warned that "resistance is at $1.1760".

Added Marc Chandler, head of global currency strategy at Brown Brothers Harriman: "On the upside, the $1.1760-70 area represents the initial target and additional resistance is seen in the $1.1800 area."

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