TENS OF thousands of homeowners were put on notice that interest rates are likely to rise next week after European Central Bank chief Jean-Claude Trichet said the bank was exercising “strong vigilance” against inflation.

Mr Trichet’s latest warning came as European analysts estimated that the euro zone inflation rate remained at 2.7 per cent in June, the same as in May and well above the ECB’s target of keeping inflation below but close to 2 per cent.

“The current monetary policy is accommodative and . . . as I said we are in a state of strong vigilance,” Mr Trichet told MEPs in Brussels yesterday.

He often uses the expression “strong vigilance” to indicate that the ECB governing council will raise rates when next it meets on the issue. This happens next Thursday when the bank’s governing council meets in Frankfurt.

Historically low interest rates have cushioned homeowners with tracker and variable-rate mortgages against tax increases and pay cuts, although some banks unilaterally increased variable loan rates as their fiscal position deteriorated.

In light of the frail position of most Irish mortgage lenders, it is a virtual certainty that they will pass on the likely increase in full to variable-rate customers.

Since the rate on tracker mortgages is contractually tied to the ECB rate, they too will rise if the ECB acts.

When warning three weeks ago that the ECB was preparing to increase rates again this month, Mr Trichet said its policymakers were never pre-committed.

His remarks yesterday – backed up by a new inflation estimate from Eurostat, the EU Commission’s statistical agency – suggest nothing has happened since then to lead the bank to change course.

Most analysts expect the ECB to increase its main interest rate by 0.25 of a percentage point to 1.5 per cent next week.

The ECB cut rates to a record low of 1 per cent in May 2009 in response to the fiscal crisis and its governing council has kept it at that level until April, when it increased the main rate by 0.25 percentage points to 1.25 per cent. “It is of paramount importance that the current rise in inflation does not give rise to broad-based inflationary pressure,” Mr Trichet said.

“As I said in the press conference after the last governing council [meeting], we see the monetary policy stance as still accommodative and risks to price stability on the upside.”