The European Central Bank raised interest rates for the first time since the 2008 financial crisis on Thursday but signaled it was not necessarily the start of a series of similar steps.
ECB President Jean-Claude Trichet used phrasing at a news conference traditionally seen as associated with further swift hikes. But he stressed that the bank had not taken Thursday's decision as the first in a series of moves.
That comment surprised financial markets which were betting on two further rises in rates before the end of this year.
It may reflect the bank's concern that jacking up borrowing costs too fast would harm the euro zone economies struggling with high debt.
Trichet also said that the ECB had encouraged Portugal to request an international bailout -- a day after its Prime Minister Jose Socrates relented and asked for aid.
The stance of monetary policy remains accommodative and thereby continues to lend considerable support to economic activity and job creation, Trichet said, reading out the bank's post-decision statement at a news conference.
We will continue to monitor very closely all developments with respect to upside risks to price stability.
The phrase monitoring closely was once seen as a sign the ECB was two months off raising rates while very closely meant it was on the cards for the next month. But the term and use of very has lost its significance in recent years.
When pressed on the outlook for interest rates, Trichet said: We did not decide today that it was the first in a series of interest rate increases.
The euro fell further after those comments, while shorter-dated euro zone debt pared recent losses.
The increase in the ECB's benchmark refinancing rate marks a gentle exit from the central bank's policy response to the global financial crisis. It had held the refi rate at a record low 1.0 percent since May 2009.
ECB policymakers had flagged the decision heavily in advance and all but four of 80 economists polled by Reuters last week expected a 25 basis point rise.
This makes the ECB the first major developed economy central bank to hike rates and the decision will cement its reputation as a single-minded inflation fighter, said ABN Amro economist Nick Kounis.
The hike is unwelcome for peripheral countries, but arguably the core member states were in need of this move already some time ago. In that sense, the timing of the increase is a balancing act, which is part and parcel of the one-size-fits-all monetary policy, he added.
The ECB also raised its deposit rate by 25 basis points to 0.50 percent, and increased its marginal lending rate by the same amount to 2.0 percent.
The rate decision came less than 24 hours after Portugal announced it was seeking European Union support, a decision long expected by financial markets.
For months, the central bank has been privately pushing Lisbon to accept assistance, and the fact it has finally happened may free the ECB to take a firmer line on the budding inflationary risk.
The ECB is concerned that firm oil prices -- near 2-1/2 year highs -- could boost inflation expectations, and financial markets are pricing in two further quarter-point rises in interest rates this year to follow Thursday's move.
But the Frankfurt-based bank must be careful not to hurt euro zone economies struggling to generate growth after implementing eye-watering public sector cuts to regain the faith of market creditors.
(Additional reporting by Sakari Suoninen; Editing by Hugh Lawson)