MARKETS are on alert for the first increase in eurozone interest rates in five years, after Jean-Claude Trichet, President of the European Central Bank (ECB), delivered the clearest possible signal that it was ready to act as soon as next month.

In remarks that economists took as setting the stage for the ECB to raise rates on December 1, M Trichet told the European Banking Congress: “After two-and-a-half years of maintaining historically low interest rates, I consider that the Governing Council is ready to take a decision on interest rates.”

M Trichet said that the council, the ECB’s rate-setting committee, would “moderately augment” the present 2 per cent level of rates. He made clear that the main motivation of the Frankfurt-based ECB in ordering the first move in eurozone rates since June 2003 would be to head off perceived threats from inflation.

It would act “in order to take into account the level of risks to price stability”, he said. “This move would aim at coping with the inflationary risk.”

Economists on both sides of the Channel were virtually unanimous is seeing M Trichet’s remarks as making a rate rise next month an inevitability. Only a few analysts said that any weak eurozone economic data that emerges before then could defer a rise until January.

“It makes no sense to announce something like that and then you don’t deliver,” Thomas Mayer, of Deutsche Bank, said. Michael Schubert, of Commerzbank, said: “That was a clear announcement — the ECB cannot reverse itself.”

M Trichet’s remarks in Paris came a day after council members held their monthly “non-policy” meeting, at which they discuss economic issues but do not decide on rate changes.

Analysts speculated that the strength of official eurozone GDP data released this week, which showed growth in the 12-nation bloc accelerating to 0.6 per cent in the third quarter, had probably persuaded dovish elements on the council to “cross the floor” to side with hawks, pressing hard for higher interest rates.

Mr Mayer said that M Trichet would have wanted to avoid any misinterpretation of remarks by other council members, which might be made between now and December 1. “Trichet has now taken the wind out of their sails,” he said.

Most economists expect that a rise will be by only a quarter-point as the ECB begins to gradually tighten policy, noting M Trichet’s use of the word “moderately”.

The ECB’s apparent decision to begin tightening rates is likely to provoke attacks from some eurozone governments. Finance ministers from a number of countries recently urged that rates be held until a sustained economic recovery was clearly in place.

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