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Last Updated: Thursday, 7 December 2006, 12:45 GMT
Eurozone interest rate up to 3.5%
Euro notes
The ECB has been steadily raising interest rates
The key eurozone interest rate has been raised to 3.5% as the European Central Bank (ECB) keeps a close rein on inflation.

The quarter of a percentage point rise is the sixth in the last 12 months and had been widely signalled by the ECB.

Many analysts expect the rate to hit 3.75% in early 2007.

The ECB is worried about the prospect of rising prices as the eurozone economy expands at its fastest rate in six years and borrowing levels rise.

Export worries

It has set a 2% inflation comfort zone and although the annual rate stood at 1.8% in November, ECB president Jean-Claude Trichet has warned that there is "no room for complacency" over price rises.

The bank has been steadily raising the cost of borrowing since late 2005, after it had been left at a historical low of 2% for over two-and-a-half-years.

Many politicians are worried that higher interest rates put even more upward pressure on the euro.

It has reached a near 20-month high against the dollar, at $1.33, making eurozone exports more expensive.

Europe is the largest exporter of goods in the world, shipping nearly $1.5 trillion worth of goods every year.

One-fifth of that goes to the US, which has to pay for these imports in euros.

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