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ECB signals eurozone interest rates are set to rise | |
(about 1 hour later) | |
The European Central Bank (ECB) has signalled that it will raise interest rates next month, from 1.25%. | |
Earlier on Thursday, the ECB kept rates unchanged for the second month in a row, after increasing them in April for the first time in almost two years. | |
The central bank wants to raise rates again in July to curb inflation in some of the eurozone's 17 member states. | |
But 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 to 1.9% from 1.7%. | |
The European economy remains extremely fragile with many countries grappling with high unemployment, huge debts and government spending cuts. | |
'Last' move? | |
In May, the European Union approved a 78bn euro (£68bn; $110bn) bail-out for Portugal, which comes after the Irish Republic and Greece also had to be bailed out. | |
"If we are right in expecting growth to slow further in the coming months, both in the periphery and the core, then a July move may prove to be the last," said Jonathan Loynes, chief European economist at Capital Economics. | |
Markets have remained weak over fears that Greece's debts will still have to be restructured, a measure that the central bank opposes. | |
Forcing Greek investors to take losses on their debt would be considered a credit default by ratings agencies, meaning the ECB could not accept Greek bonds as collateral. | |
Mr Trichet reiterated that he opposed any restructurings of Greek debt that were not purely voluntary and created a "credit event". |