U.S., euro zone central banks beat rate-rise drum

PARIS (Reuters) - The European Central Bank reinforced the view on Thursday that the only way for interest rates in most major economies to go is up when, like the U.S. Federal Reserve days earlier, it rang alarm bells on inflation.

ECB President Jean-Claude Trichet, who usually insists that he never pre-announces rate decisions, said several ECB policymakers talked of the case for a rate rise at a meeting on Thursday and the ECB could move next month.

"We considered that -- it is not excluded -- that after having carefully examined the situation, we could decide to move our rates a small amount in our next meeting," Trichet told a news conference.

"I don't say it's certain. I say it's possible."

Trichet warned of inflationary pressures, saying: "The risks to price stability over the medium term have increased further. Inflation rates have risen significantly since the autumn of last year owing mainly to strong increases in energy and food prices."

That came days after U.S. Federal Reserve chief Ben Bernanke also made a noted departure from his standard line to warn of the dangers of inflation and increased worries at the U.S. central bank that dollar weakness could make it worse.

"We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations," Bernanke told a monetary policy in Spain on Tuesday.

As for price pressures, a day later in the United States, he said:

"Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve. "We will need to monitor that situation closely."

To boot, the Bank of England, one of the few central banks forecasters generally believe will need to reduce interest rates, left Britain's key policy rate at a meeting on Thursday.

The Organisation for Economic Co-operation and Development said in a twice-year report on Wednesday the ECB should probably leave rates where they are for the next 18 months and that the Fed's next move should be up, but probably only from June 2009 when the U.S. economic situation should have stabilized.

Until now, a majority of economists have been predicting one cut this year in a current ECB rate of 4.0 percent, albeit with decreasing conviction as food and fuel prices push overall euro zone inflation to a record 3.6 percent year-on-year in May.

The OECD also said policy rates in Japan, which is struggling to shed years of deflation rather than head off inflation, should stay on hold until June 2009, and could possibly rise a bit after that.

After Trichet's Thursday news conference, Kenneth Broux, a financial markets economist at Lloyds TSB in London, said of the likelihood of an ECB rate rise:

"Unless we see some major problem with a European bank in the next few weeks I don't think anything will stop them (from raising rates)."

(Writing by Brian Love; with input of Jamie McGeever in London and central bank reporters in Frankfurt, Washington and London; Editing by Gerrard Raven))

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