A number of economists have predicted that euro zone interest rates will rise before the end of the year, following recent comments from ECB officials.
Speaking at the European Parliament today, European Central Bank president Jean-Claude Trichet said the euro zone economy would continue to recover modestly next year. He also said any further rise of oil prices would hit growth and that the bank would be 'vigilant' regarding risks of inflation.
Trichet called for 'strong vigilance' on inflation risks, saying that 'concerns relate in particular to oil price developments'. He concluded that 'overall, while the prospects for price developments remain in line with price stability over the medium term, upside risks to price stability have emerged'.
IIB economist Austin Hughes said the tone of the remarks did not exclude the possibility of a rise in interest rates in the months ahead. 'We still think there is a greater chance of a December ECB rate hike than the markets currently envisage,' Hughes added.
Writing in September's Bank of Ireland economic bulletin, economist Dr Dan McLaughlin referred to 'more hawkish rhetoric' coming from the ECB recently.
He said that while the markets were not pricing in a euro zone rates rise until early 2005, ECB rhetoric suggested that monetary policy would be tightened this year. The economist suggested the rates increase could come in November.
Dr McLaughlin said recent ECB monthly bulletins had become more pessimistic about inflation, and had raised new concerns about the growth in mortgage lending in several countries.
Meanwhile, Ulster Bank's Niall Dunne is predicting that euro zone rates will rise by 0.75 points over the next 12 months.
