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Last Updated: Thursday, 2 March 2006, 13:39 GMT
Euro rates up on inflation fears
ECB president Jean-Claude Trichet
Mr Trichet has said the bank will be "vigilant" on inflation
The European Central Bank has raised its key interest rate to 2.5%, in response to a strengthening eurozone economy and fears of growing inflation.

The quarter-point rise from 2.25% is the second in four months, after the bank had held rates steady at 2% for more than two years.

Last month, ECB President Jean-Claude Trichet said the bank would remain "vigilant" on inflationary pressures.

He said the ECB had to ensure economic growth did not affect price stability.

Mixed outlook

Persistently high oil prices have posed the most significant threat to inflation.

The eurozone's economic outlook for 2006 is mixed, but some of its largest economies, including France and Germany, are expected to gain momentum, with reports indicating that business and consumer confidence is running high.

In its last forecast the ECB predicted economic growth of 1.9% across the 12-member eurozone bloc in 2006, compared with 1.4% last year.

Many investors and analysts expect the bank to raise the key interest rate again this year, especially as rates in the US and other regions are much higher.

But there are still concerns that raising eurozone rates too soon, or too aggressively, could hamper Europe's economic recovery just as it is gathering momentum.


SEE ALSO:
ECB to be 'vigilant' on inflation
02 Feb 06 |  Business
UK interest rates unchanged again
12 Jan 06 |  Business
ECB ignores fears to raise rates
01 Dec 05 |  Business
OECD warns on eurozone rate rise
29 Nov 05 |  Business


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