The European Central Bank held interest rates today, but signalled that a rise in July is likely in a bid to tackle price pressures in the euro zone, where it faces pressure to help clear the way for a new Greece bailout plan.
The ECB kept its main refinancing rate at 1.25 per cent, but has indicated that further rate increases are imminent.
In the post-meeting news conference, ECB president Jean-Claude Trichet said the bank will exercise "strong vigilance" over price pressures, using a phrase that in the past signalled a hike was a month away.
He used similar language in March to flag a rate rise in April to 1.25 per cent from 1.0 per cent - the ECB's first tightening in two years.
Speaking in Frankfurt, Mr Trichet said that the latest data confirmed "continued upward pressure on inflation", adding that "strong vigilance" is warranted.
"Today would have been too early for the ECB to raise rates," said Berenberg economist Holger Schmieding. "It would have been too soon after the April rate hike, it would have signalled a very aggressive ECB rate stance.
Earlier today, the Bank of England kept its key interest rate unchanged at a record low 0.5 per cent.
Firming cost pressures - euro zone producer prices rose by more than expected in April and headline inflation was 2.7 per cent, well above the ECB's 2.0 per cent target ceiling - mean a rate rise is likely in July.
In the last set of forecasts, published in March, the ECB forecast inflation of around 2.3 per cent this year and 1.7 per cent next.
The ECB is caught up in high-stakes manoeuvring between financial markets, euro zone governments and the International Monetary Fund over who pays to avoid Greece becoming the euro zone's first state insolvency. Germany is pushing for private sector involvement.
Reuters
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