The cost of credit in the eurozone is expected to go up following a decision by the European Central Bank yesterday to raise interest rates for the first time since the financial crisis of 2008.

The rates were raised by 25 basis points to 1.25 per cent. The bank did not rule out further increases this year in response to rising inflation across the 17 euro area member states.

Economists yesterday predicted that interest rates in the eurozone would reach 1.75 per cent by the end of the year.

Inflation has risen sharply in the past few months reaching 2.4 per cent in the euro area in February. Malta registered a higher annual inflation of 2.7 per cent during the same month.

Addressing a press conference following the decision, the President of the ECB Jean Claude Trichet said the bank’s monetary policy “remains accommodative” and that it would monitor price risks “very closely”.

He stressed, however, that the ECB did not see this move as “the first in a series”, reassuring markets it was not about to embark on an aggressive tightening policy that could choke the eurozone’s struggling periphery countries. Greece, Ireland and now Portugal have all had to ask for bailouts from the EU to fund their deficits, with Spain also a worry.

“Interest rates are low,” Mr Trichet said, stressing that the ECB would do what it had to do to keep inflation in check.

“The stance of monetary policy remains accommodative and thereby continues to lend considerable support to economic activity and job creation.”

Pressed on the outlook for interest rates, Mr Trichet said: “We did not decide today that it was the first in a series of interest rate increases.”

The euro initially dipped against the dollar but later appreciated to trade above $1.43 as markets digested his comments.

During the press conference, the ECB’s chief also said that the bank had encouraged Portugal to request an international bailout.

The Portuguese bailout, estimated to amount to some €70 to €80 billion, is expected to be discussed today in Budapest during an informal meeting of EU Finance Ministers.