The European Central Bank (ECB) stands ready to counter upside inflation risks, President Jean-Claude Trichet said this afternoon.
The ECB today left euro zone interest rates unchanged at 4 per cent.
Mr Trichet said the fundamentals of the euro zone economy remained sound but that financial market turbulence meant continued uncertainty around the effect on the real economy.
Developments had "fully confirmed our assessment that there are upside risks to price stability over the medium term", he said. "The Governing Council stands ready to counter upside risks to price stability."
Most economists polled expect the ECB to keep rates on hold throughout next year. But a growing minority see its next move as a cut, part of a growing global bias towards policy easing as ripples from the credit crunch spread.
"The reappraisal of risk in financial markets is still evolving and is accompanied by continued uncertainty about the potential impact on the real economy," said Mr Trichet. "We will therefore monitor very closely all developments by acting in a firm and timely manner."
However, Mr Trichet made clear the ECB was not dropping its guard on the danger of knock-on effects of high oil prices on broader inflation, despite the turmoil on financial markets.