Bundesbank President Axel Weber sent strong signals in a newspaper interview today that the European Central Bank could continue to raise its key interest rates next year.
Asked by the daily Frankfurter Allgemeine Zeitung whether further rate hikes were on the agenda next year, Weber - who as head of the German central bank sits on the ECB's rate-setting governing council - hinted strongly that that could well be the case.
'We have made clear that monetary policy is continuing to stimulate the economy and that key rates are still at a low level,' Weber said.
The ECB has raised its key rates six times in the past 12 months, each time by a quarter of a percentage point. The last move last week brought the bank's benchmark 'refi' refinancing rate to a five-year high of 3.5%.
But ECB watchers and the financial markets are divided whether the bank will continue to tighten monetary conditions still further next year, with some observers suggesting that the tightening cycle has already peaked, while others see the refi rising to 4% by mid-2007.
Pressed by the newspaper whether rates could rise beyond 3.75%, Weber refused to be pinned down. 'I don't want to speculate about concrete monetary policy measures,' he said.
'We must be ready to act. In order to anchor inflation expectations at a level compatible with price stability it is necessary to counter inflation risks decisively,' he added.
Among the upward risks were a possible oil price increases, tax rises and potentially strong wage demands.
