ECB interest rate rises to 1.5 per cent

The European Central Bank has increased interest rates by 25 basis points to 1.5 per cent.

It last raised rates in April 2011 again by 25 basis points from a historically low level of 1 per cent.

Jean-Claude Trichet, president of the ECB, said: “This decision will contribute to keeping inflation expectations in the euro area firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term.”

Trichet said that in the first quarter of 2011 GDP posted a strong quarter-on-quarter increase of 0.8%, following the 0.3% increase in the last quarter of 2010. Statistics point towards a continued expansion of economic activity in the euro area in the second quarter of this year, albeit at a slower pace.

Annual HICP inflation was 2.7% in June 2011 according to Eurostat’s flash estimate – the same rate as in May. The relatively high inflation rates seen over the past few months largely reflect higher energy and commodity prices. Looking ahead, inflation rates are likely to stay above 2% over the coming months.

Trichet said: “Inflation expectations must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.”