Frankfurt - The European Central Bank delivered its first rate hike in about three years on Thursday as it steps up moves to combat rising inflation.
The ECB's rate-setting council's decision to raise its benchmark refinancing rate by 25 basis points to 1.25 per cent brought to an end the 17-member eurozone's long run of historically low borrowing costs.
But with the increase widely expected, the market focus will be on ECB chief Jean-Claude Trichet's press conference later Thursday for indications as to whether the rise in borrowing costs forms part of a new rate-hike cycle by the bank.
Underlying the risks involved in the move, cash-strapped Portugal said before the announcement that it would tap the European Union-led bailout fund to help it meet debt commitments.
The ECB's decision to raise the cost of money could increase the pressures on the currency bloc's heavily indebted members, which in addition to Portugal includes Spain and Ireland.
This is particularly the case if the markets price in further rate rises, analysts say.
The ECB's rate hike also raises the prospects of the bank moving to wind back the government bond purchase programme it launched last May to help to prop up the eurozone debt-hit member states.
Thursday's meeting of the Frankfurt-based ECB coincided with announcements from both the Bank of Japan (BoJ) and the Bank of England that they left their rates on hold.
The BoJ also unveiled a new lending program to help businesses in Japan's earth-quake ravaged north east.
The euro traded close to 1.43 dollars following the ECB's announcement. The common currency breached the 1.43-dollar mark Wednesday to reach its highest level in more than a year.
The ECB's move to demonstrate its anti-inflationary credentials comes in the wake of a sharp rise in energy costs on the back of the unrest in the Arab world driving up inflation.
Inflation climbed to more than two-year high of 2.6 per cent last month, the European Union's statistics office Eurostat said last week.
The surprise jump pushed consumer prices further away from the ECB's target of keeping inflation close to, but below, 2 per cent.
Interest rates in the eurozone have been on hold since May 2009 when the ECB cut borrowing costs by 25 basis points to an historic low of 1 per cent as it sought to shore up economic confidence in the currency bloc amid the global recession.
However, signs have recently emerged that a slightly more brittle economic mood has taken hold across the currency bloc in the wake of the rise in oil prices on the back of the unrest in the Arab world and the threat posed to the Japanese economy by last month's devastating earthquake, tsunami and ongoing nuclear crisis.
The European Commission's closely watched economic sentiment survey for the eurozone fell more than forecast in March to 107.3 from 107.9 in February. Analysts had expected a more modest drop to 107.5.
