August 03, 2007	Friday	Rajab 18, 1428

FRANKFURT, Aug 2: European Central Bank president Jean-Claude Trichet hinted strongly on Thursday that the bank’s key interest rates would be raised in September. The ECB’s top officials left the important refinancing rate unchanged at 4.0 per cent for the second consecutive month in a meeting on Thursday, but Trichet told journalists the bank was exercising “strong vigilance” in the face of inflationary risks.

The term has been used in the past to indicate that rates will be raised in the eurozone the following month.

“It’s a confirmation that strong vigilance is therefore of the essence to ensure that risks to price stability over the medium-term do not materialise,” Trichet said.

Analysts agreed that the bank will raise the refinancing rate to 4.25 per cent in September.

Howard Archer of Global Insight said: “The ECB sent a very clear message that interest rates will rise by a further 25 basis points to 4.25 per cent in September.

“We still lean towards the view that the ECB will lift interest rates to 4.50 per cent by the end of the year given its ongoing significant concerns about the risks to the medium-term eurozone inflation outlook.”

Those risks stemmed from the ongoing buoyant eurozone growth, a tighter labour market, excessively strong money supply and credit growth and elevated oil prices, the analyst said.Sylvain Broyer of IXIS was of the same opinion, saying Trichet’s words backed the scenario of the main refinancing rate “reaching 4.50 in December before pausing”.

Trichet also said the ECB was paying “great attention” to market volatility.

Martin Lueck of UBS said however Trichet’s interpretation was “of a re-appreciation of risks, leaving little room to believe the ECB might renounce further rate hikes for the sake of the financial markets’ stability.”

The ECB has pushed up rates eight times in the past 18 months, last hiking them by a quarter of a percentage point to 4.00 per cent in June.—AFP