The European Central Bank needs to look seriously at current interest rate levels to safeguard its credibility and given high inflation expectations, Executive Board member Juergen Stark told German magazine Der Spiegel.
Asked in an interview with the weekly whether he was in favour of a near-term rise in rates, Mr Stark said: "For reasons of credibility I think the ECB needs to look seriously at the current rate level given the high inflation expectations."
Commenting specifically on a looming rate decision in July, he added: "We will not let ourselves be locked in over a long period of time, rather we will decide on a case-by-case basis what is necessary to guarantee price stability over the medium-term."
ECB President Jean-Claude Trichet shocked markets earlier this month when he said a rate rise was possible in July but not a certainty.
Investors now expect a rise to 4.25 per cent next month and another hike to 4.5 per cent by the end of the year, but have trimmed bets for more aggressive action after Stark and others said policymakers were not mulling a series of rate increases.
Mr Stark told Der Spiegelthe ECB had taken a wait-and-see approach over the past year given uncertainties linked to turbulence in financial markets, but that now it must look forward.
"We have to look forward now and recognise that there are significant risks to price stability," Mr Stark said. He acknowledged there were different views within the ECB about how to proceed on monetary policy, but said there was a good chance the bank would "reach a conclusion rapidly".
Mr Stark said he expected higher inflation over the next 18 months given the robust rise in oil and food prices and noted some countries in the euro zone were seeing clear increases in wages despite a weakening of growth.
"At the same time, some companies in the services sector, where competition does not appear to be that strong, are raising prices massively. We cannot allow this," he said.
Asked whether he understood the argument for a reduction in interest rates given risks to growth, he responded: "The issue is lasting growth. This cannot be achieved with an inflation rate of over three per cent."
"People can feel their purchasing power eroding," he continued. "We need to be very watchful that we don't reach the point of an upwards wage-price spiral."