FRANKFURT, Nov 7: Euro zone inflation will probably fall below 2 per cent next year, but the European Central Bank may still raise interest rates if euro zone growth accelerates, ECB Governing Council member Nicholas Garganas said in interviews published on Monday.

Economic data since September supports the ECB’s forecast that growth will strengthen early next year, and the central bank must keep financial markets’ confidence in fighting inflation, ECB chief economist Otmar Issing said in a separate interview also published on Monday.

Markets are on high alert for signs the ECB might be preparing to raise rates from their current 2.00 per cent. ECB President Jean-Claude Trichet said on Nov. 3 that rates were currently still appropriate, but the central bank could raise them any time it was necessary.

Garganas made a similar point in an interview with Bloomberg news agency. With economic activity in Europe picking up and with inflation running at higher levels than we expected at the beginning of the year, we would be ready to change our stance, he said.

Garganas added he was particularly concerned at the pace of growth in M3 money supply. There is no question that the recent acceleration in M3 growth poses some serious risks to inflation, Garganas said.

But in a separate interview with news agency dpa-AFX, he said it was likely euro zone inflation, now running at an annual rate of 2.5 per cent, would fall below the ECB’s 2.0 per cent price stability threshold in 2006.

Garganas also said wage demands — a potential channel for high oil prices to have a second-round effect on inflation — were subdued. The ECB currently forecasts inflation to fall within a 1.4-2.4 per cent range next year.

Some financial analysts believe upward revisions to the growth or inflation outlook in the ECB’s December economic forecasts, due at next month’s rate-setting meeting, could prove the trigger for a public change in policy.

Issing, in comments to news agency Market News, said that the ECB had seen a “whole series of positive signs” for the real economy since its September forecasts.

Issing also stressed the importance of retaining market confidence in the ECB and thereby keeping inflation expectations under control.

The moment this confidence were to be merely threatened, inflation expectations would surge, and it goes without saying that we can’t stand by and permit this, he said.

—Reuters