The ECB's rate has been at 1% since May 2009. Yesterday, the ECB left it there again, but at its April meeting "a rate hike is possible," Trichet said. The risk of inflation in the eurozone is "rising," he warned, and "considerable vigilance" is needed to prevent rising commodity prices from turning into higher inflation. In 2005-07, when the ECB was tightening monetary policy, if Trichet spoke of the need for vigilance, it meant that the rate would rise at one of the next meetings.

Oil prices, which have crossed the $100 per barrel mark due to instability in Libya, and accelerating economic growth are driving up inflation. The ECB has raised its inflation forecast for the eurozone for 2011 to 2–2.6% (December forecast – 1.3–2%), for 2012 – from 1.5 to 2.2%. The ECB is trying to keep the inflation rate below 2%.

After Trichet's speech, the euro rose to its highest in four months, $1.3974, compared with $1.3866 at the close of trading on Wednesday (Bloomberg data). Since February 21, when ECB board member Yves Mersch said the regulator might raise its inflation forecast, the euro has strengthened against the dollar by 1.4%. The fact that the euro is now worth more than $1.3 is due to expectations of a faster rate hike in Europe than in America, says Alexey Moiseyev, chief economist at VTB Capital.

German government bond yields also jumped yesterday. The yield on two-year instruments reached 1.76% during trading, the highest since June 2009. The yield on 10-year bonds rose 10 basis points to 3.29%. A series of rate hikes should not be expected, Trichet warned, the ECB intends to maintain price stability "with standard and non-standard measures." The regulator is ready to issue loans for a week and a month in unlimited quantities "for as long as necessary," and loans for three months, also in unlimited quantities, over the next quarter.

From June 2000 to October 2008, the ECB kept the rate at 4.25%. During the crisis, it began to lower it later than the US Federal Reserve (in September 2007) and the Bank of England (in December 2007). Now the Fed rate is 0-0.25%, the Bank of England rate is 0.5%. Neither the American nor the British National Bank has yet made statements about their readiness to begin tightening monetary policy.

If rates are raised before the end of the year, it will be the ECB rather than the Fed, believes Vladimir Sporynyin, Managing Director of Everest Asset Management, since stagflation is one of the main problems facing the eurozone. In his opinion, the Fed will try to maintain the status quo without raising rates.

Trichet against inflation