The European Central Bank cannot give the all-clear on interest rates given the bright economic outlook and persistent price risks, Governing Council member Axel Weber said in a newspaper interview.
In comments which back market expectations for at least one more rate rise this year, Weber told the Friday edition of German business daily Handelsblatt that it was too early for the central bank to lay down its arms.
"I don't think that in the current economic environment we can give the all-clear on monetary policy," the Bundesbank president was quoted as saying. "Inflation risks exist in the medium term and we must act against them."
The ECB has raised rates to a five-year high of 3.75% and markets fully expect a hike to 4% in June, with the risk of another move to 4.25% later this year.
Upbeat economic data suggest the euro zone has lost little momentum from last year's rapid 2.7% economic growth and policymakers have so far brushed off concerns about the dampening effect of a strong euro, which hit a fresh two-year high against the U.S. dollar on Friday.
"The growth environment and the medium-term prospects for economic development are absolutely positive at the moment," Weber said, referring to both Germany and the euro zone.
Germany's finance ministry said on Friday the euro zone's largest economy had probably barely slowed during the first quarter, despite a three percentage point rise in value added taxes in January.
Handelsblatt said Weber pointed to possible renewed rises in oil prices and stronger wage settlements as increasing risks to inflation, which has been under the ECB's 2% benchmark for seven months.
Speaking in Mexico late on Thursday, ECB executive board member Jose Manuel Gonzalez-Paramo gave a similar assessment on price risks, adding in further rises in indirect taxes.
Gonzalez-Paramo said the euro's strength was not a cause for concern, although he declined to give any reasons, saying: "I am not worried, there is no reason to be worried."
DERIVATIVES AMONG RISKS
Still, Weber said there were risks to the positive economic outlook and to financial markets, such as currency carry trades, the slowing U.S. real estate market and ongoing global imbalances.
"Taking all these risks together there is the potential that it could lead to higher volatility on financial markets," he said.
"We do not know, for example, how some of the derivative instruments behave in a less favourable financial environment."
Weber said the current relaxed attitude "could be counterproductive in a less favourable environment," echoing warnings by ECB President Jean-Claude Trichet.
Trichet told a swaps and derivatives conference earlier this week the industry may have become complacent over the market's dangers, warning that some investors' balance sheets might not be strong enough to withstand shocks.
U.S. and UK regulators have also expressed concerned about the exceptional growth of the largely privately-traded market in credit derivatives, complex financial instruments used to insure against the cost of issuers defaulting.