Trichet signals ECB rate rise

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The head of the European Central Bank yesterday paved the way for an increase in interest rates in December, saying that "strong vigilance" on inflation was needed.

Jean-Claude Trichet, the bank's president, said he would say nothing to "distract" from the current market over the path for interest rates. Traders have priced in a rise in rates to 3.5 per cent next month.

"[This is] the most transparent bank in the world," said David Page, an econ-omist at Investec. "Barring a dramatic change in the economic environment between now and next month the ECB will tighten policy to 3.50 per cent in December and Trichet could not have committed the ECB to this move more clearly."

Mr Trichet's comments came after the bank's governing council decided to leave its main rate unchanged at 3.25 per cent, as had been widely predicted in the markets.

But he refused to give any hints about the interest rate outlook for 2007, when German tax increases, Italian budget tightening and slower global economic growth make the economic outlook more uncertain.