European Central Bank raises rates and others follow

The European Central Bank on Thursday raised its benchmark interest rate by a quarter point to 2.75 percent, but avoided saying it would sharply tighten credit to head off inflation - a prospect that has been roiling global financial markets.

It is the first time the ECB has changed rates since June 2003 and the first time they have risen since 2000.

Critics argued that higher borrowing costs could cause a slowdown in growth and pointed to the mixed economic picture in key eurozone members.

The ECB president, Jean-Claude Trichet, said that the bank would continue gradually increasing borrowing costs, a course it began in December and that has become part of a long-anticipated worldwide trend toward higher rates.

On Thursday, central banks in South Africa, India, Denmark and South Korea all increased rates, something Turkey had done on Wednesday and the U.S. Federal Reserve now appears likely to do this month.

India's central bank unexpectedly lifted benchmark interest rates by a quarter percentage point, joining policy makers in Europe and Asia, as rising oil prices and an expanding economy threatened to fuel inflation.

The Reserve Bank of India increased the reverse-repurchase rate at which it drains money from the banking system overnight to 5.75 percent, citing ``current macro-economic and overall monetary conditions.'' It raised the rate at which it adds funds to the banking system to 6.75 percent.

India's $775 billion economy expanded 9.3 percent in the quarter ended March 31, rounding off the fiscal year with growth of 8.4 percent, the fastest after China among the world's 20 biggest economies. Inflation may accelerate after the government this week raised fuel prices for the first time in nine months.


As inflation has quickened in both Europe and the United States, global stock markets retreated over much of the past month amid fears that central banks would have to squeeze growth by raising interest rates above a "neutral" level that neither promoted nor curbed growth.