FRANKFURT, Feb 8: The European Central Bank held its key rates steady as expected on Thursday, but ECB chief Jean-Claude Trichet issued a strong hint that borrowing costs could rise next month in order to keep a lid on inflation in the 13 countries that share the euro.

At its regular monthly rate-setting meeting, the ECB held the minimum bid rate for its regular refinancing operations steady at 3.50 per cent.

And it also held its two other key rates -- the deposit rate and the marginal lending rate -- unchanged at 2.50 per cent and 4.50 per cent respectively.

Earlier in London, the Bank of England also maintained its key rates at 5.25 per cent.

Nevertheless, at the news conference afterwards, ECB president Trichet left no doubt that the guardian of the euro would tweak rates higher next month in order to nip inflationary pressures in the bud, as the current economic upturn in the single currency area continues apace.

He did so by re-introducing a key phrase that has been absent from his remarks for the past two months.

“We will be strongly vigilant in order to ensure that risks to price stability over the medium term do not materialise,” Trichet said.

The use of the term “strong vigilance” is widely seen as Trichet’s code-word for preparing the markets for a rate hike the following month.

And ECB watchers said that the re-appearance of what they called the “V-word” in Trichet’s comments this time round paved the way for another rate hike in March.

The ECB has raised eurozone borrowing costs six times since December 2005, last time on December 7, 2006.

And each time, the term “strong vigilance” has been used by the bank to flag the move the month before.

With the re-appearance of the term this month, “the ECB calmly confirmed today that it intends to raise rates to 3.75 per cent in March,” said Bank of America economist Holger Schmieding.

—AFP