European Central Bank President Jean-Claude Trichet. - Reuters

The European Central Bank (ECB) raised its key interest rate to the highest level in nearly six years yesterday amid steady growth and left the door open to further increases - though it appeared in no hurry to move again.

The widely expected increase will make everything from mortgages to auto loans more expensive for more than 317 million people in the 13-nation euro zone, which accounts for more than 15 per cent of the world's gross domestic product.

Even though inflation has been within the ECB's guidelines, President Jean-Claude Trichet said it raised its main rate to four per cent from 3.75 per cent because of the likelihood of higher prices. He cited concerns over oil prices and wage developments.

Wage growth supports consumer spending - a key factor in the nation's economic health - but a rapid, unchecked rise can bolster inflation concerns.

Euro-area economy growth

"The euro-area economy continues toexpand at a pace which is significantly stronger than generally expected a year ago," Trichet said. He added that, "The conditions are in place for the euro-area economy to continue to grow at a sustained rate."

Even after yesterday's decision, the ECB's key rate remains below those of the United States, at 5.25 per cent, and Britain, at 5.5 per cent.

Traders mainly expect the Bank of England to hold steady when it meets today.

Comments this week from U.S. Federal Reserve Chairman Ben Bernanke that inflation is "ebbing" but remains "somewhat elevated", means the Fed, which last month held its key rate unchanged for the seventh straight meeting, is unlikely to lower it anytime soon.

Trichet left the door open for another increase, but not immediately; and he sounded a less hawkish note than on previous occasions.

Even with the benchmark rate at its highest point since September 2001, Trichet said monetary policy "is still on the accommodative side".

But he steered clear of saying that 'strong vigilance' is necessary - a phrase that has long functioned as a code to markets that an increase is a month away - and also did not say the bank was monitoring developments 'very closely'.

"If there is a need for strong vigilance in the future, I will tell you when there is such a need," Trichet told reporters. "At the present moment ... we will continue to monitor closely all developments to ensure that risks to price stability do not materialise over the medium term."

- AP