THE CHIEF executive of Europe's biggest lender yesterday called on central bankers to raise interest rates to combat inflation.

Michael Geoghegan, group chief executive at London-based HSBC Holdings, said that central banks were not yet committed to taming inflation, and predicted that US interest rates would rise after the US presidential election in November.

"Inflation is a long-term problem because there is no long-term will to solve it," Mr Geoghegan said at an informal shareholders' meeting in Hong Kong.

Mr Geoghegan also defended the bank's controversial new bonus scheme, saying that it was necessary to attract and to hold on to senior managers.

"The reality is we must pay the market rate because if we don't, we won't be able to attract the talent.

"And your sons and daughters won't aspire to be the chief executive of HSBC," he added.

His comments come as HSBC braces itself for criticism from shareholders over the bonus scheme, which could see senior executives share more than £100 million if they meet a series of demanding targets over the next three years.

Investors have expressed concern over the introduction of the scheme, which comes after HSBC suffered heavy losses in the US as a result of the meltdown in the subprime mortgage market.

Some are expected to vote against the introduction of the scheme at the bank's annual meeting in London on Friday.