The European Central Bank has raised interest rates for the first time in five years, joining other major central banks in ending very cheap credit that has restored global economic growth.
Defying a political outcry that costlier money would threaten a fragile euro-zone recovery, the ECB lifted its benchmark refinancing rate by 0.25 percentage points to 2.25% on Thursday.
Money markets had fully priced in the move after Jean-Claude Trichet, the ECB President, said two weeks ago that the central bank was ready to "moderately augment" interest rates, ending more than two-and-a-half years of record low eurozone rates.
The rise coincides with a slow improvement in the 12-nation region's economy and increasing concerns among central bankers globally about inflationary risks caused by high oil prices and super-cheap credit.
The ECB last raised rates in October 2000 and they had not changed since a cut to 2% in June 2003.
Markets unclear
The new minimum bid rate will start when the next refinancing operation is settled on 6 December, the ECB said.
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The rise coincides with economic
improvements in the region |
Markets were left unclear on ECB strategy when policymakers said they should not assume a US-style steady stream of rate hikes.
Inflation
After its November rate-setting meeting, the central bank said inflation dangers had risen, especially from higher oil prices which could feed a wage and price spiral and endanger its promise to protect price stability.
Consumer prices have risen by more than the ECB's price stability ceiling of 2% every year since 1999 and look set to do so again in 2005 and 2006.
The ECB also said it raised the rate on its marginal lending facility, used in emergencies by banks short of overnight cash, by 0.25 percentage points to 3.25%.
The rate on the ECB's deposit facility, which accepts excess cash from the market, was raised by the same amount to 1.25%.
These rates take effect from 6 December, the ECB said.