ECB raises key rate to 4.25 percent

The move comes despite worries in some quarters that it could dampen growth, but ECB President Jean-Claude Trichet said at a press conference that the fundamentals of Europe's economy "are sound" and that the bank was focused on inflation--which he said could remain high "for a more protracted period than previously thought."

He did not signal when rates might go up again, as he did at last month's meeting. The increase was the first since June 2007.

Thursday's move was widely expected, and Trichet said the decision was unanimous among members of the bank's governing council.

"The decision was taken to prevent broadly based second-round effects and to counteract the increasing upside risks to price stability over the medium term," Trichet said. Second-round effects mean an inflationary spiral when expensive gas and food begin to fuel workers' higher wage demands.

He seemed to imply one hike might be enough: "The monetary policy stance after today's decision will contribute to achieving our objective of price stability," Trichet said. "I have no bias and we are never pre-committed."

Howard Archer, the chief UK and European economist for Global Insight in London, took that to mean that the bank had clearly moved itself back into a neutral stance.

"The ECB's statement and Mr. Trichet's comments do little to support the view that this could be the first of a series of interest rate hikes," he said in an e-mail. "There was no reference to the ECB being in a 'state of heightened alertness' or 'strong vigilance,' thereby suggesting that no further interest rate hikes are currently planned in the near term at the very least."

Trichet has stressed that his main objective is to keep prices stable, and all but promised an increase this month at last month's meeting. But he had also suggested that repeated interest rate hikes are probably not likely.

On Monday, Eurostat, the E.U. statistics agency, said inflation in euro nations hit a record 4 percent in June, double the ECB's inflation target of below or around 2 percent.