The European Central Bank aims to raise interest rates gradually to a neutral level, with the next move possible as soon as May, news agency Market News said today citing "well-informed sources".
One senior official was quoted as saying there was a consensus that the recovery in the euro zone economy was almost self-sustaining and the only real danger would be a significant rise in the euro, which would act as a brake on growth.
According to Market News, a "central bank official" and a "senior source" suggested the ECB's next interest rate move could come in May.
Economists generally put the neutral rate - a level which neither boosts nor slows growth - at 3-4 per cent. Market News said there was a "consensus" among sources that 3.5 per cent was a neutral level.
The comments gave the euro a boost and put pressure on euro zone government bond and interest rate futures as they priced for a chance of a rate hike sooner than expected.
"I definitely don't think I would rule May out," the senior source was quoted as saying.
The ECB's May meeting will be the last attended by ECB chief economist Otmar Issing, who retires at the end of that month, and the official said: "Maybe there are some who think this might give the new chief economist a clean slate."
The euro rose around 20 ticks after the report raised the prospect of euro zone rates rising sooner than expected, hitting $1.2088, just a whisker away from a $1.2093 level, a rise above which would take it to a six-week high.
"The market probably knew that anyway but it's added a bit of fuel to upward momentum in euro/dollar at the moment," said a London-based currency trader.
MNSI quoted an ECB Governing Council member as saying the ECB could theoretically now aim for a neutral rate level, which he considered to be 3.5 per cent. The ECB raised interest rates earlier this month to 2.5 per cent.
"In actual practice, how long will it take the ECB to raise rates by (another) 100 basis points without harming growth or causing panic in the markets?" he said.
"You do the math. It cannot be done in a short period."