The European Central Bank has cementing its reputation as a single-minded inflation fighter by raising the cost of borrowing in the euro zone.
The ECB’s main interest rate has been put up from a record low 1.00 percent to 1.25 percent for the 17 countries using the euro.
A relatively strong economy gave Bank president Jean Claude Trichet the go-ahead for a rate rise.
He said: “Recent economic data confirm that the underlying momentum of economic activity continues to be positive, with uncertainty remaining elevated. We will continue to monitor closely – very closely – all developments with respect to upside risks to price stability.”
The last time the bank raised its benchmark interest rate was in July 2008. It has been at 1.00 percent since May 2009.
At his news conference Trichet hinted at further swift hikes. Financial markets expect two further rises this year.
However the bank knows that increasing borrowing costs too fast will harm growth in euro zone economies struggling with high debt – the so-called peripheral countries – Ireland, Greece, Portugal – which are all need international bailouts.
The move will impact the property market .. euro zone banks are expected to move quickly to raise rates for mortgages holders.
If the ECB’s decision causes the euro to strengthen against the pound it may add pressure on the Bank of England to follow suit with UK interest rates.
The Bank of England held rates at a record low 0.5 percent on Thursday despite high inflation there.