European Central Bank officials agreed last night that the path for interest rates in 2007 remains uncertain, but put different emphasis on how serious the threat of inflation is.
ECB Governing Council member Klaus Liebscher of Austria said investors should not rule out further ECB rate rises as there are still inflation dangers in the euro zone, and Yves Mersch of Luxembourg said the ECB had to act in a timely way to protect price stability.
But their Portuguese counterpart Vitor Constancio told reporters that inflation was under control -- demonstrating the uncertainty, even within the ECB, about the future course of euro zone monetary policy.
The ECB raised interest rates to a five-year high of 3.5 per cent last week, and most financial analysts polled by Reuters after the decision expected another rise in early 2007. But there is less agreement on when this will happen, and on whether rates will rise even further to hit 4 per cent.
Mr Liebscher's rates warning builds on comments on Thursday night from ECB Executive Board member Juergen Stark, who said markets were right to raise their bets for further increases.
Both Mr Liebscher and Mr Stark see a risk of higher inflation from wage growth, another possible oil price shock and a trend by governments to increase sales taxes and fees.
"(The Dec. 7 rate rise) reflects that risks to price stability exist," Mr Liebscher said. "We have to aim for anchoring inflation expectations in the markets towards the direction of our own price stability goal."
"We don't have a preconception towards further rate decisions at whatever date, but from that you should not draw the conclusion that this was it," the Austrian central bank governor told reporters.
Adding 1.5 percentage points to credit costs over the last year has failed to derail economic growth so far, with the euro zone set to post its best growth performance in six years in 2006. Mr Mersch said the recovery was "more than satisfactory" and early figures pointed to a solid fourth quarter as well.
"For the fourth trimester I have seen very preliminary figures of 0.7 per cent, before slowing down to 0.4 per cent in the first quarter (of 2007)," he told the European Economics and Financial Centre in London.