Tough talk from a growing number of European Central Bank policymakers made financial markets raise their bets today for a faster pace of credit tightening in the euro zone.
President Jean-Claude Trichet said the ECB is "permanently alert" to inflationary dangers and is keeping open all its options on raising rates whenever needed.
"It is the mark of our institution to be constantly alert," he said in an interview with four European newspapers. "We do what is necessary, when it is necessary."
Mr Trichet gave little new insight into how inflationary risks are unfolding and the monetary policy implications, merely saying he stuck to the ECB analysis he explained after it raised rates earlier this month. However, he did nothing to dampen talk of more aggressive rate increases.
Since December the ECB has increased borrowing costs by a quarter per centage point every three months, reaching 2.75 per cent at its June meeting.
Most analysts expect the next rise in late August at the second of two council meetings that month. But ECB Governing Council member Nicholas Garganas, in an interview released today, said there is nothing to stop the ECB from acting more aggressively by raising rates by half a percentage point or in early August, if warranted.
Mr Garganas noted that recent data showed inflationary dangers are accelerating and that he expected economic growth to exceed expectations this year and next.
Until now, uncertainty over the strength of euro zone growth has been one factor keeping the ECB to gradual increases.
Another Governing Council member, Irish Central Bank governor John Hurley, also said the ECB was ready to move as growth has gained considerable momentum and inflationary risks are on the upside.
"We will not hesitate to act should new information change our assessment of the risks to price stability," he said.
These warnings, combined with strong business sentiment data from Germany, helped to push euro zone government 10-year bond yields to their highest level since late 2004.