The European Central Bank has raised interest rates by 0.25 percentage points to 2.5%, the highest level in nearly three years, to counter inflationary pressures in a strengthening economy.
This rise will add an extra €34 per month to an average 25-year variable mortgage of €250,000.
The 0.25 percentage point rate hike was the second ECB credit tightening in three months. It was universally expected in financial markets, especially after Germany reported today that retail sales had jumped in January.
Today's latest data from Germany followed surging sentiment surveys and provided long-awaited evidence that the euro zone's largest economy is poised for a consumer revival, the missing element in this sluggish recovery.
ECB President Jean-Claude Trichet had already said that growth in the 12-nation region was broadening and strengthening while inflation dangers persist, and that market expectations for the March hike were 'perfectly sensible'.
So far, ECB policymakers have given little guidance beyond March, saying only they will respond to economic data as needed to ensure the ECB delivers on its mandate of getting consumer price inflation just below 2%. Currently the rate is above target at 2.3%.
The ECB also said it had lifted rates on its marginal lending facility, used in emergencies by banks short of overnight cash, to 3.5%, and its deposit facility, which accepts excess cash from the market, to 1.5%.
