10 Jun 2011

Europe's central bank signals interest rate rise

12:53 pm on 10 June 2011

The European Central Bank, or ECB, has signalled that it will raise interest rates next month.

The central bank kept rates unchanged at 1.25% for the second month in a row this week, after increasing them in April for the first time in almost two years.

The ECB wants to raise rates again in July to curb inflation in some of the eurozone's 17 member states.

However the BBC reports that it has to balance that against the need to leave rates low to boost growth in nations such as Greece and Portugal.

In his press conference, ECB president Jean-Claude Trichet pledged to exert strong vigilance on inflation, a signal to the markets that rates will be raised at the next meeting.

Inflation in the eurozone was 2.7% in May. The ECB increased its forecast on inflation for 2011 to 2.6% from its previous prediction of 2.3%.

The bank also increased its economic growth forecast for 2011 to 1.9% from 1.7%.