The European Central Bank sent a clear signal today that it is about to raise its key interest rates, with ECB President Jean-Claude Trichet saying the guardian of the euro was 'ready' to take a decision on rates.
Trichet's surprisingly frank comments immediately sent the euro sharply higher against the dollar on the foreign exchange markets.
'After two and half years of maintaining historically low interest rates, I consider that the governing council is ready to take a decision on interest rates,' the Frenchman told the European Banking Congress in Frankfurt today.
The euro shot up to $1.1750 on the back of the remarks from $1.1678 earlier this morning. The ECB has held its central 'refi' refinancing rate steady at 2% since June 2003.
But in view of persistently high oil prices, bank officials have recently stepped up their anti-inflation rhetoric, fuelling speculation of an imminent tightening move.
'We will withdraw some of the accommodation which is in the present monetary stance,' the central bank chief said. Higher rates would not be an impediment to sustainable economic growth and job creation in the 12 countries that share the euro, he argued.
Euro zone politicians have repeatedly pleaded for a delay in any upward move in borrowing costs so as not to jeopardise the fledgling economic recovery in the euro area.
But third-quarter growth data for the euro zone and its biggest economy Germany, published earlier this week, came out higher than expected.
The ECB is scheduled to hold its next interest rate-setting meeting on December 1.
IIB economist Austin Hughes said Trichet's comments were 'probably as close as the ECB can come to pre-announcing a rate rise'. He pointed to Trichet's comments about removing 'some of the accommodation' as a signal that a December move would be the first stage of a gradual process of raising rates.
