ECB raises interest rates

The European Central Bank (ECB) further raised the cost of borrowing in the eurozone, raising interest rates to 3.75%, although the rates are not expected to move much higher in the medium-term.

The rates rise was not a surprise as ECB president Jean-Claude Trichet said that &quotstrong vigilance&quot was needed to help stymie inflation.

However, commenting on the revised interest rates, Mr Trichet changed his description from &quotlow&quot to &quotmoderate&quot, leading some economists to forecast that borrowing costs may be approaching their peak.

The level of inflation is currently falling below the ECB's 2% target, but the bank is expected to take a longer term view and add another quarter point rise by the middle of the year.

The bank has projected the inflation outlook for the next two years to be around the target 2% mark, and upwardly revised its economic growth forecasts to 2.5% from 2.2%.

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