FRANKFURT (Reuters) - The European Central Bank will exercise "strong vigilance" over rising inflation, President Jean-Claude Trichet said on Thursday, and may raise interest rates as soon as next month.
Following are analysts' and traders' views.
PATRICK JACQ, INTEREST RATE STRATEGIST, BNP PARIBAS, PARIS
"Trichet's hawkishness was what the market was expecting, what was surprising was everybody was expecting was a change on liquidity pricing, while there was the view that the ECB would keep rates unchanged at least till June, July or maybe later. The result is that there is a strong probability of a rate hike as soon as next month while liquidity conditions will remain unchanged.
"These have major implications on rates even if liquidity conditions did not change, for example for the three-months...Then the impact of the decision of the ECB would be significant because the rate of these three-month operations is weighed upon the average refinancing rate during period."
CARSTEN BRZESKI, ING GLOBAL ECONOMICS
"The ECB just gave a broad hint that the period of record low interest rates is quickly coming to an end. Interest rates remained on hold but Jean-Claude Trichet effectively pre-announced a rate hike at the next meeting in April.
"The first signal came from the ECB's macro-economic assessment. Risks to price stability have finally moved to the upside. For the first time since November 2008, the ECB officially sees upside risks to price stability.
"The second signal came from the introductory statement where interest rates were not anymore 'appropriate' and where the term 'strong vigilance' had been added. Even if the history of ECB code words only developed and was fine-tuned during and not at the beginning of the last rate cycle, the strong vigilance sends a clear signal of a hike at the next meeting.
In the past "monitor closely"-"monitor very closely"-"strong vigilance" sequence was followed by a rate hike. While rates look set to go up in April, the non-standard liquidity measures will remain unchanged.
"The ECB's hawkishness of recent weeks was no bluff."
HOWARD ARCHER, IHS GLOBAL INSIGHT
"The ECB has loaded the interest rate gun and is poised to pull the trigger in April. The indications are that this will be a one-off warning shot against inflation for and the ECB currently has no plans to follow it up with further interest rate hikes in the near term."
"Specifically, the ECB said that upside inflationary risks in the Eurozone have increased and that 'strong vigilance' is warranted with a view to containing price stability.
"While Mr. Trichet also said that the ECB is never pre-committed to acting and the decision will be taken depending on the latest information and data available, the fact of the matter is that it would be highly unusual for the ECB not to follow through with a rate hike in April having indicated that it is possible."
KORNELIUS PURPS, FIXED INCOME STRATEGIST, UNICREDIT, MUNICH
"We should now try to price in a steady rate hike cycle starting as soon as next month. It's quite clear that we have to price this cycle, we are doing it in the market currently with a 20 basis point increase at the front end of the curve and in the Euribor universe."
"This is definitely not the end of the move, we have definitely not yet priced in an entire rate hike immediately."
JACQUES CAILLOUX, RBS EUROPEAN ECONOMICS
"In a similar fashion to 2008, the ECB has pre-announced a rate hike for its next policy meeting. Our traffic light note forces us to follow the rule and change our forecast to a rate increase in April.
"This is a shock to us relative to our earlier expectation of an ECB remaining on hold till September.
"We believe the risks assigned to such a decision are high in a context of the periphery situation remaining under stress. In this context we find it difficult that the ECB will be able to raise rates several times over a short period of time given the side effects that might be created by such action.
"We are thus only adding one interest increase in April and leave our earlier forecast unchanged with the next rate increase taking place in September. Markets will likely move to pricing on rate hike per quarter which at this stage is appropriate in our view. We would in fact certainly not rule out an extra hike between April and September."
VTB CAPITAL ANALYST ANDREY KRYUCHENKOV
On impact on gold
"Due to civil unrest in the Middle East/North Africa region, the downside is still limited
"Yet (the ECB comment) is still important, as it gives you a sense of things to come. Rates will have to rise, and currency yields (will be) up."
BOND TRADER IN LONDON
"There's not much flow on the back of it but people are just digesting it.
"The phrases 'very accommodative' and 'strong vigilance' are the words Trichet used last time we went into a rate hiking cycle and expectations of that are picking up."