The European Central Bank voted to keep interest rates on hold yesterday but made it clear that monetary policy would be tightened soon to dampen down rising inflation.
Wim Duisenberg, the ECB's president, said the weak euro was the key threat to its inflation target and said the bank would remain "vigilant".
But he refused to be drawn on whether the ECB was planning to intervene on the money markets to prop up the euro, which this week fell to a record low against the dollar, the pound and the yen. The single currency fell half a cent after his remarks, to just above $0.90.
The decision to keep rates steady at 3.75 per cent was widely expected in the markets, as the ECB ordered a hike just two weeks and a move yesterday might been seen as a panic response to the falling euro.
Mr Duisenberg said all the indicators pointed to "continued economic growth". Industrial production was strengthening, consumer confidence was at an all-time high, unemployment was falling and private spending was rising.
"The depreciation of the exchange rate of the euro, until it is reversed, will increase the risks to price stability in the medium term" he said. "These risks have to be taken seriously in the light of the current strong upswing."Reuse content