Europe’s fledgeling economic revival could suffer in the coming months as credit conditions among banks are set to tighten, the eurozone’s top central banker said yesterday.

Jean-Claude Trichet, President of the European Central Bank, said that growth in the eurozone could turn out to be worse than expected yesterday as the Bank left interest rates unchanged at 4 per cent.

In his regular press conference Mr Trichet flagged a survey of lending conditions which will be published today. “I can tell you that the result of the survey points to some net tightening in the banking sector,” he said. “The tightening seems to affect large transactions.”

But Mr Trichet refused to give any hint that he agreed with the view of many economists that eurozone rates have peaked and the next move will be down.

Instead he pointed to inflationary dangers such as oil and commodity prices, bottlenecks in goods and labour markets and rapid money and lending growth.

“I was very clear on the position of the Governing Council of price stability being our radar screen,” he said, when asked whether the eurozone’s central bankers believed that the next move would be a cut in rates.

Nonetheless, the council’s statement suggested that its stance had shifted somewhat in response to weeks of turmoil on the financial markets, sparking a debate in the market about just how far the bank has moved. The council dropped its usual description of rates as “accommodative” to stronger growth, which it has used in every statement since the bank started tightening rates in December 2005, and which was was seen as a clear signal that rates would be increased.

David Brown, chief European economist at Bear Stearns, who now expects that the ECB’s next move will be a cut, said: “The most significant part of the ECB’s press conference was what Trichet left out.”

But Mark Meadows, a currency trader at Tempus Consulting in Washington, said: “Expectations were that Trichet was going to pare back some of his hawkish theme. While his comments did not show an exact timetable for another rate increase, they did indicate strongly to the market that the ECB was concerned with inflation and was going to hike interest rates again.”

The euro initially slipped against the dollar but settled higher at $1.4129, up 0.3 per cent from Wednesday, as dealers concluded that the ECB had not lost its focus on inflation.

Data last month revealed that economic sentiment in the eurozone has hit its lowest level since May 2006, led by a sharp downturn in German confidence. But despite the threat of a slow-down in activity, inflation has continued to rise, hitting 2.1 per cent in September from 1.7 per cent the month before, above the ECB’s 2 per cent target.

Gabriel Stein, of Lombard Street Research, said: “If market rates normalise by 2008, it is still more likely that the ECB will retain a bias to tighten monetary policy”.

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