The European Central Bank signalled yesterday that it was likely to raise interest rates next year because of rising inflationary pressures in the euro zone.
In its monthly bulletin for December, the ECB said higher oil prices, the euro's low external exchange rate, strong growth in private credit and the possibility of large wage settlements might all endanger price stability.
"On balance, the risks for price stability are on the upside. Monetary policy will therefore need to remain vigilant in the period ahead and to act in a timely manner," the ECB said.
The euro remained close to three-day lows against the dollar yesterday, after European Central Bank chief economist, Prof Otmar Issing, said he believed the currency's starting value in January was on the high side.
The euro fell to $1.017 after Prof Issing's remarks, extending the day's losses to more than 1 per cent, but it recovered back above $1.02 in New York late yesterday evening.
Most private economists think the ECB will gradually tighten monetary policy next year, bringing the refinancing rate to between 3.5 and 4.0 per cent by the end of 2000. But some expect the ECB to wait until the second quarter of next year before making its first move.
The ECB bulletin said annual inflation was expected to average about 1.5 per cent in 2000 and 2001, below the central bank's target ceiling of 2 per cent.
