EUROPEAN interest rates could be raised next week after the leader of Germany's Bundesbank warned that the weakness of the euro and strong European growth are stoking inflationary pressures on the Continent.

Bundesbank president Ernst Welteke warned that the economies of some euro-zone countries were displaying signs of overheating.

The euro's exchange rate is also weak and earlier this week was trading at 0.89 euros to the US dollar, its lowest rate since May.

Mr Welteke said the European Central Bank was not pleased about the exchange rate level and warned it was essential that inflationary pressures be countered urgently.

The European Central Bank is due to meet on Thursday to decide the minimum interest rate for the euro, currently 4.25 per cent.

But the comments by Mr Welteke - widely perceived as the most doveish of the council members who decide interest rates - have led economists to predict that European rates will be raised by 0.25 per cent to 4.5 per cent.

Nick Parsons, chief currency strategist at investment bank Commerzbank, said: "For him to come out with an aggressive set of comments is a clear sign that the official rate will be raised next week."

Any hike in European rates would be welcomed in the countries such as the Irish Republic, where there are fears the growth of the "Celtic Tiger" is getting out of hand.

But a 0.25 per cent rise would be nowhere near enough to slow down the Irish economy, warned Mr Parsons, who said that it would also have a negligible impact in the UK.

Jeremy Batstone, head of research at stockbroker NatWest Securities, said a 0.25 per cent rise was the most likely scenario.