The ECB has raised euro-zone borrowing costs twice since December, each time by a quarter of a percentage point, bringing its benchmark "refi" refinancing rate to stand at 2.50 percent currently. A further tightening of monetary conditions is more or less a done deal when the euro bank's decision-making governing council meets in the Spanish capital on Thursday.

Twice a year, the council holds its monthly rate-setting meeting at a venue outside its headquarters in Frankfurt. This time it will meet in Madrid.

The question for some ECB watchers is whether the central bank will raise rates by a more aggressive 0.50 percentage point amid concerns about the inflationary effects of runaway oil prices, especially as an economic recovery in the 12 countries that share the euro appears to be gathering pace.

"An interest rate hike on Thursday is pretty much a done deal. The real question is what size the hike will be," said Capital Economics analyst, Lucy Hartiss.

Getting ready

ECB officials have been meticulously preparing the ground for a tightening of monetary conditions in recent months. ECB chief Jean-Claude Trichet has been flagging further rate hikes for some time, repeatedly insisting that "strong vigilance" was required on the inflation front.

More recently, Luxembourg central bank chief Yves Mersch was adamant that further tightening was necessary, even if the exact scale and timing of a rate move had not yet been decided.

And last week, the head of the Austrian central bank, Klaus Liebscher, was asked whether a move was imminent and he replied: "I assume so." High oil prices were "more of a danger to price stability than to economic growth," since they make themselves felt a lot faster and to a much greater effect on the cost of living than on economic recovery, Liebscher argued.

Recovery gathers pace

Indeed, the latest consumer price data showed a slight acceleration in area-wide inflation to 2.5 percent in May, way above the ECB's ceiling of 2.0 percent. Pressure is also building further up the price pipeline, with money supply data showing a more than ample supply of liquidity in the euro-area economy, and very strong credit growth. At the same time, an economic recovery appears to be gaining in breadth and depth, the latest data show.

"Data have continued to suggest that the euro-zone economy is accelerating into the second quarter," said Investec analyst, David Page.

Analysts believe the ECB is likely to raise its own growth forecasts as well when it publishes them, also on Thursday. The bank currently predicts growth of 2.1 percent in 2006 and 2.0 percent in 2007. However, the current strength of the euro might diminish the need for aggressive rate hikes, since a strong euro tightens monetary conditions in the single currency area by making euro-zone goods more expensive to export and keeping a lid on the price of goods imported into the euro area.

"Objectively speaking, the data point more to a quarter-point move," said Commerzbank economist, Michael Schubert.

Bank of America economist Holger Schmieding agreed. "We don't think the ECB will be ready to impose a half-point hike" at this point, he said, arguing that the bank would have flagged a more aggressive hike more clearly in advance.