ECB chief signals interest rate rise

The European Central Bank yesterday signalled the cost of borrowing in the euro zone would rise again soon, with most economists predicting a now-traditional quarter-point rise in the main rate to 4.25 per cent in early September.

But the central bank for the 13-member currency bloc made no comment on the trajectory of monetary policy beyond next month, leaving the door open to more rate increases or to a pause as past moves stem the speed of price rises.

Jean-Claude Trichet, the ECB president, said "strong vigilance" was essential to guard against excessive inflation, a term that has heralded a modest rate rise the following month ever since the bank started tightening in late 2005.

Separately, Christian Noyer, the governor of the Bank of France and an ECB board member, fiercely defended the primacy of the ECB's inflation-busting mandate, saying it was the "fruit of experience".

In a scarcely veiled rebuke to Nicolas Sarkozy, France's president, who has been calling for a looser monetary regime, Mr Noyer said many countries had been tempted to stimulate economic growth by pursuing a more expansive monetary policy.

"All these attempts have failed," he wrote in a introductory letter to the Bank of France's annual report addressed to Mr Sarkozy. "Inflation increased, sometimes to very high levels, without employment improving."

Given strong euro zone growth and inflation at the top end of the ECB's comfort zone, central bank watchers had long anticipated the bank's move. - ( Financial Times service)