A rise in interest rates next month is now seen as all but inevitable following comments by the president of the European Central Bank.
The Frankfurt-based institution left European rates on hold yesterday, but Jean Claude Trichet signalled heightened concern about lending growth and inflation, as well as a diminishing fear that rate rises will harm Europe's growing economy.
"The governing council will exercise strong vigilance in order to ensure that risks to price stability over the medium term do not materialise. Such vigilance is particularly warranted in the context of ample liquidity," Mr Trichet said yesterday. Analysts seized on Mr Trichet's repeated use of the word vigilance as a code that another rate rise, possibly by as much as half of a percentage point, is on the way.
"Central Bankers don't explicitly pre-announce rate hikes, but when they repeatedly warn that vigilance is of the essence, markets tend to get the message," Niall Dunne of Ulster Bank said yesterday.
"The opening paragraph of Mr Trichet's statement today all but guaranteed a June rate rise through its repeated use of the word 'vigilance'. This has become the ECB's chosen codeword to signal a looming rate hike," said Irish Intercontinental Bank chief economist Austin Hughes.
Mr Hughes added that the strong adjectives which Mr Trichet had attached to the word pointed to the chance that rates would rise by a half a percentage point. "If the World Cup also sparks a strengthening of consumer spending, ECB governing council members and euro-area interest rate markets could face a hotter summer than is now expected," he said.