The European Central Bank will raise interest rates again if its economic outlook is confirmed, ECB President Jean-Claude Trichet said.
The ECB raised interest rates a quarter percentage point to a three-year high of 2.75 per cent today.
Mr Trichet said the rate increase was needed to ensure inflation expectations remained anchored in the face of medium-term inflation pressures, adding that euro zone rates were still low and its policy remained accommodative.
"Given the outlook for price developments and the dynamism of money and credit growth in the euro area, we will continue to monitor closely all developments to ensure price stability over the medium and longer term," he said.
"If our assumptions are confirmed . . . then progressive withdrawal of monetary accommodation will be warranted."
The ECB's Governing Council shied away from a half percentage point increase, which a minority of traders had forecast.
But the bank's staff raised their inflation projections for this year, in a sign that more aggressive rate rises may be needed to get inflation back under control.
Staff now see inflation in 2006 around 2.3 per cent, up from 2.2 per cent forecast three months earlier, though the 2.2-per cent mid-point forecast for 2007 remained unchanged.
Soaring oil costs and widespread gains in other raw materials driven by robust global economic growth have made the ECB's goal of getting inflation just below 2 per cent elusive.
But the central bank has shown increased determination to quash inflationary pressure now that euro zone economic recovery looks secure.
Today's rate rise is the third since December 2005, and was widely expected.
Economists expected the ECB to keep up its quarterly rate tightening pace, with the cost of borrowing reaching 3.25 per cent by December.
But the ECB faces a tricky balancing act because the lasting strength of the euro zone upturn is unclear, stock markets have suffered heavy falls in recent weeks and the euro is strengthening against the dollar.