The European Central Bank (ECB) looks ready to prepare the way this week for a second interest rate increase in February or March now that strong economic data have raised confidence in the euro zone recovery.
Several ECB policymakers have said they considered December's rate rise to 2.25 per cent, the first in five years, a minor move. That suggests they are ready to back further action, although not at the Governing Council's first meeting of the year on Thursday.
German Bundesbank President Axel Weber said last month he would have supported a half percentage point rate increase, and Dutch central bank governor Nout Wellink said this week that one camp at the ECB favours further action.
Recent confidence surveys, industrial orders and production data point to the 12-nation region growing at around a 0.5-0.6 per cent quarterly rate in the past three months of 2005 and the first quarter this year.
That would match the 0.6 per cent rate in the third quarter of 2005 and put growth above its annual trend rate, while monetary conditions remain very stimulative.
Interest rates adjusted for inflation are hovering around zero, and household mortgage borrowing roared ahead at an 11.2 per cent annual rate in November.
Inflation was estimated at 2.2 per cent for December, still above the ECB's 2 per cent ceiling. Many ECB watchers see little reason for the ECB to delay the next increase much longer.
It probably was a compromise for ECB President Jean-Claude Trichet to say after the December rate rise that the ECB had no "ex ante" plans for a series of rate moves, analysts said.
That language would have won over doubters on a divided Governing Council. It also signalled to markets that the ECB will follow a distinctive path and not follow in the US Federal Reserve's footsteps by steadily raising rates to neutral.