European Central Bank president Jean-Claude Trichet signaled today that euro zone interest rates are unlikely to rise next month but left the door firmly open for an increase in July.
Mr Trichet did not use the phrase "strong vigilance" in his opening remarks at a news conference which followed the ECB's decision to leave rates at 1.25 per cent, after raising them in April to end two years of crisis-induced loose policy.
In the past, the ECB regularly used the phrase to signal a hike was only a month away and Mr Trichet did so in March, a month before the central bank raised rates from the record low 1 per cent at which they had been held since May 2009.
"We will continue to monitor very closely all developments with respect to upside risks to price stability," Mr Trichet told a news conference.
However, he added that the ECB could move policy any month it saw fit. "We are never precommitted," he said.
Ahead of the meeting, analysts said a repeat of the language Mr Trichet used in April, when he said the ECB would "monitor very closely" inflation risks, would signal a July move.
The euro fell to a session low of $1.4708 from around $1.4815 in response.
Economists had expected the ECB to leave rates on hold this month. The Bank of England did the same earlier today but, facing a weak economy, is expected to leave its benchmark rate at a record low 0.5 per cent for months yet.
The ECB, on a tightening path, also contrasts with the US Federal Reserve which has signaled it is in no hurry to scale back its support for the USeconomy.
Data released since the April meeting has shown euro zone inflation accelerated to 2.8 per cent.
The ECB aims to keep it just below 2 per cent over the medium term and analysts expect last month's 25 basis point rate hike to be the first in a run of increases.
"We continue to see upward pressure on overall inflation, mainly owing to energy and commodity prices," Mr Trichet said.
Today's meeting was the first attended by incoming Bundesbank chief Jens Weidmann, who on Monday stuck to the hawkish policy stance of his predecessor, Axel Weber, by saying monetary policy must be normalised.
The meeting in Helsinki comes just two days after Portugal announced it had reached a three-year bailout deal with the European Union, International Monetary Fund and the ECB.
That, and speculation about a possible Greek debt restructuring, is unlikely to blow the ECB off course, however, as it exits the loose monetary policy it employed from October 2008 in response to the global financial crisis.
ECB policymakers have been at pains to stress the separation of their standard policy tools -- interest rates - from non-standard measures, including the unlimited liquidity operations they use to help banks in the periphery that are frozen out of interbank markets.
The ECB said in March it would carry on providing unlimited funding for banks at its three-month operations through to the end of June and would keep full allotment at its weekly and one-month operations, until at least July 12th.
With the liquidity taps still on, the periphery's woes are unlikely to stop further rate rises.
Reuters