ECB President Jean Claude Trichet said yesterday that the bank was signalling its readiness to act by raising rates if inflation got out of hand. He said that he hoped this would incentivise other policy makers, such as government and trade unions, to work towards low inflation.

"Our decision will contribute to keeping medium and long-term inflationary expectations anchored at levels consistent with inflationary expectations," Mr Trichet said.

Mr Trichet repeated several times that the council's decision should not be interpreted as meaning that rate increases would take place next year. "This is not an ex ante decision to engage in a series of decisions to increase interest rate in the future," he said. He said that the increase brought interest rates to a level that were consistent with price stability, while still being supportive of economic growth. "Interest rates across the entire maturity spectrum continue to remain very low in both nominal and real terms".

Mr Trichet signalled some concern about credit growth in the euro zone and said that liquidity conditions were generous. "The strength of monetary growth has gained further momentum in past months. Growth in M3 has been driven by the most liquid components which are very sensitive to interest rates". M3 is a key measure of money supply monitored closely by the ECB.

In a reference to several countries including Ireland, Mr Trichet warned of growth in house prices. "Property dynamism in a number of housing markets need to be monitored carefully".