– The European Central Bank may raise interest rates further given the upside risks to price stability, the central bank chief Jean-Claude Trichet indicated Thursday.

In the introductory statement released after the central bank hiked its interest rates, Trichet said policy makers will continue to monitor very closely all developments with respect to “upside risks to price stability.”

UniCredit economist Marco Valli pointed out that it was the same wording used after the April rate hike, meaning that the ECB seems to target another rate hike in October.

Following the meeting held in Frankfurt, the Governing Council hiked the main refi rate by 25 basis points to 1.50 percent.

The move has raised concerns that the ECB is putting a sluggish economic at risk by tightening monetary policy.

Trichet acknowledged that the pace of economic growth has slowed in the second quarter of 2011, insisted that the ECB’s monetary policy stance remains appropriately “accommodative.”

Meanwhile, Trichet dropped his code words “strong vigilance” on inflation from today’s statement, indicating to analysts that the tightening cycle is not over yet.

However, it is unlikely that there will be a hike next month.

“Trichet’s lack of guidance on forthcoming policy indicates that whilst the ECB might be eyeing a further gradual tightening in the future, it prefers to keep its options open,” ING Bank economist Martin van Vliet said.

The fact that Trichet avoided any explicit comment on whether market expectations for ECB rates were reasonable reinforces this view, the economist added.

“We continue to think that the odds are in favor of an additional 25bp rate hike later this year, with the October meeting a strong candidate,” the ING economist said. “Today’s rate hike may indeed not be Trichet’s last.”

The ECB also relaxed the collateral rules for Portuguese debt saying that the austerity program adopted by the country’s government was appropriate. This suspension of the minimum credit rating threshold will be maintained until further notice, the bank said. Previously, the central bank made such provisions for Greece and Ireland.

Moody’s Investors Service downgraded Portugal’s credit rating to junk status on Tuesday citing the growing risk that the country will need a second bailout. The agency also raised the concern that the country will not be able to meet deficit reduction and debt stabilization targets as set out in the EU-IMF loan agreements.

Responding questions on Greece, Trichet said the central bank would always say ‘no’ to a credit event or selective default. He reiterated that the decision was up to governments.

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