FRANKFURT, Dec 7: The European Central Bank raised its key interest rates to their highest level in five years on Thursday, as ECB watchers speculated that the current cycle of rate increases in Europe might soon be at an end.

As widely expected, the ECB raised its benchmark “refi” refinancing rate by a quarter of a percentage point to 3.50 per cent at its last policy-setting meeting of the year, the sixth such move in the past 12 months.

The cost of borrowing in the 12 countries that share the euro now stands at the highest level since September 2001.

But while ECB chief Jean-Claude Trichet appeared to leave the door open to further possible rate increases, analysts interpreted remarks he made at a news conference as a possible signal that the current cycle of monetary tightening might soon be over.In London, the Bank of England held its key interest rate steady at 5 perc ent, while in Copenhagen, the Danish central bank raised its key rate by a quarter-point to 3.75 per cent.

Trichet said that even with eurozone interest rates at their new level, monetary policy in the region was still “accommodative” and further tightening might be “warranted”.

The ECB's decision-making governing council would, therefore, “monitor very closely all developments so that risks to price stability over the medium term do not materialise,” he said.

But a key phrase that the ECB chief has used repeatedly in the past was absent this time round.

Previously, Trichet had said that “a further withdrawal of monetary accommodation will be warranted” if the bank's baseline growth scenarios were confirmed.

Asked by a journalist whether that statement still stood, Trichet replied:

“No.” And Trichet even went on to caution against reading his comments as a signal of a new rate rise in February.

That “would be a wrong interpretation,” he said.

His remarks were, therefore, a signal that while maybe one further rate hike might be on the cards, it would probably mark the end of the current cycle of monetary tightening, analysts said.

They predicted one more quarter-point rise in the refi to 3.75pc in March, followed by a long period of steady rates.—AFP