Euro bank looks set to raise rates again

The Frankfurt-based bank raised euro zone rates by a quarter of a percentage point to 1.25 per cent last month, ending almost two years of record-low interest rates and beginning what economists expect to be a run of increases.

Just when the next rise comes will be the key issue tomorrow, with attention focussed on the wording ECB President Jean-Claude Trichet uses in the opening paragraph of his post-meeting statement.

“We think it’s June,” said RBS economist Nick Matthews. “If we’re correct in that, we would expect President Trichet to use the wording ‘strong vigilance’ on Thursday to signal that.”

Trichet said precisely that in March to flag April’s rate rise, deploying a phrase the ECB had used previously to signal a hike was only a month away.

For a July move, Trichet would probably repeat the language he used in April, when he said the ECB would “monitor very closely” upside risks to price stability.

A poll showed a majority of 76 economists expected the ECB to raise rates next in July though data released a day later showed an acceleration in euro zone inflation to 2.8 per cent in April.

The stronger-than-expected inflation reading, together with a survey showing factories in the euro zone ramped up production in April as prices rose at the fastest monthly rate in three years, have led some economists to lean towards a June hike.