October 03, 2006	Tuesday	Ramazan 9, 1427

FRANKFURT, Oct 2: The European Central Bank is set to raise its key interest rates for the fifth time in 10 months later this week, despite signs that inflationary dangers in the 12-country eurozone are easing as oil prices come off their highs, analysts here said on Monday.

The ECB's decision-making governing council is scheduled to hold its regular monthly rate-setting meeting in Paris on Thursday.

Of the 30 ECB watchers polled, 29 said they expected the bank to raise its benchmark “refi” refinancing rate again by 0.25 percentage point to 3.25 percent on Thursday. And one economist said the move might be a larger half-point increase to 3.50 percent.

Tighter monetary conditions in the 12 countries that share the euro are more or less a done deal this week.

At the ECB's last rate-setting meeting at the end of August, ECB chief Jean-Claude Trichet said that “strong vigilance” was warranted in view of the inflationary dangers connected with high oil prices and the over-abundant liquidity in the eurozone economy.

That is the ECB's stock phrase for signalling an imminent rate rise and top ECB officials have been keen to flag a move over recent weeks, consistently invoking inflationary dangers and painting a very positive picture of the eurozone economy.

Bundesbank President Axel Weber, one of the most hawkish members of the ECB's governing council, has been one of the most vocal, hinting that further rate rises were on the cards next year, while most ECB watchers have so far been betting on two more moves this year -- in October and December -- followed by a long period of steady rates.

Last Thursday, Weber said that the current easing of petrol prices did not mean that the all-clear could be sounded on the inflation front in the longer term.

That's why it's premature to assume that the easing of inflationary pressures will be permanent, he said.

According to the latest estimates, eurozone inflation slowed to 1.8 per cent on a 12-month basis in September from 2.3 per cent in August, the first time since January 2005 that area-wide inflation has been below the ECB's ceiling of 2.0 per cent.

Inflation will pick up to more than 2.0 per cent again in the coming months and stay there in 2007, said Calyon economist Mitul Kotecha, pointing to high oil prices and the negative effects of the planned rise in German value-added tax from next year.

Two quarter-point moves in October and December are highly probable,”predicted Bank of America economist Holger Schmieding.

There's a clear risk that we'll see further hikes in the refi to 4.0 per cent at the beginning of next year, he added, while noting that the ECB might become more cautious as the US economy loses steam and as indications increase that the German growth may also slow in 2007.—AFP