European Central Bank president Jean-Claude Trichet said the ECB will continue to monitor all euro zone inflation risks "closely" and will act in a "firm and timely manner" to ensure price stability.
The ECB left rates unchanged at today's council meeting, after hiking its main refinancing rate to 4 per cent from 3.75 per cent at its last monetary policy meeting on June 6th.
Mr Trichet's comments suggest that the ECB has not yet finished hiking interest rates but give no clear signal on the timing of the next rate hike.
He said the medium-term inflation outlook remains subject to upside risks. "Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted," Mr Trichet said.
"The Governing Council will continue to monitor closely all developments to ensure that risks to price stability over the medium term do not materialise and medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability," he said.
Mr Trichet reiterated that ECB rates are still "on the accommodative side", with financing conditions remaining favourable, while money and credit growth is vigorous. Mr Trichet said the medium-term outlook for economic activity remains "favourable".
"The conditions are in place for the euro area economy to continue to grow at a sustained rate," he said.
Based on the current level of oil prices and oil price futures, he said annual inflation rates are likely to fall only slightly in the months ahead, before rising again significantly towards the end of the year.