The European Central Bank has raised its main interest rate by 0.25 percentage points to 1.25 percent, the first rate hike since July 2008.

The ECB raised another reference rate -- the marginal lending rate -- to 2.0 percent and its overnight deposit rate to 0.50 percent.

The raise, while widely expected, is bad news for borrowers having floating rates.

The development will put pressure on the commercial banks to raise their interest rates on deposits and loans.

The Maltese commercial banks, however, had not completely followed the ECB when it reduced its base rate. They kept local rates slightly higher, ensuring that their deposit base remained healthy.

Earlier today the Bank of England resisted inflation pressures and kept its own interest rate at 0.50 percent.

European Central Bank President Jean-Claude Trichet said the bank'sdecisiont o raise its rates was not necessarily the first in a series of increases.

"We did not decide today that it was the first of series of interest rate increases and we will continue to do in the future what we have done in the past, namely to take the appropriate decisions to deliver price stability," he said.

Nevertheless he said the ECB would "continue to monitor very closely all developments with respect to upside risks to price stability," a sign many analysts take to mean that further interest rate hikes could be on the cards.

The main aim is to prevent higher oil and other commodity prices feeding through into increased wage demands and therefore fueling inflation, the so-called "second-round effects."

"Avoiding second round effects is essential," Trichet said, adding that the ECB would "do all that is necessary to preserve price stability."