It said in a statement that it "will remain alert to all emerging risks to price stability". The ECB noted that its previous five hikes over the last 10 months were already feeding through into the European economy but said credit growth remained strong and liquidity supply in the euro area ample.

The ECB lifted its benchmark minimum bidding rate to 4.50 per cent from 4.25 per cent, with its marginal lending and deposit rates also lifted by 25 basis points to 5.50 and 3.50 per cent respectively. The move gave little respite to the beleaguered euro, which see-sawed before settling just above $0.89, not much above its recent lows. Economists said the modest hike and the ECB's insistence that the euro zone economy remained robust despite recent signs of growth peaking in Germany and France indicated that the ECB would tighten again as early as October. "This just means interest rate expectations will roll over to the next few meetings. We should see another 25 basis point hike relatively soon," said Mr Sharda Dean, an economist at Schroders in London.

The decision got mixed reviews from ECB watchers with some analysts praising the bank for its cautious approach while others voiced disappointment that it did not deliver a half point rise. "I think that it's a common sense option that they have chosen by going for 25 basis points," said Stephen Webster of 4cast in London. "By doing that rather than 50 basis points they have averted potential criticism of the harmful effects for growth," he said, adding he expected another 25-basis step in October. But others thought the ECB should have not shied away from a more aggressive move for which they said it had appeared to prepare markets. "It's a compromise, but a bad compromise," said Mr Adolf Rosenstock, economist at Nomura International in Frankfurt. "It also puts a question mark over this institution and its ability to communicate with markets because the markets had been prepared for 50 basis points," he said.

President of Germany's IWH institute Ruediger Pohl, a leading economic think-tank, also criticised the ECB move as too cautious. "It's another little step which leaves the fantasy for another step. The expectation for another rate increase is there in the market and that is not good," Pohl told Reuters in an interview. (Reuters) The central bank sought to shield itself from possible criticism that it was choking off economic growth in the euro zone, saying the growth outlook "remains very positive." It also repeated its call on governments to do their part to lift the growth potential of the single currency area by implementing sweeping structural reforms.

The ECB noted that money supply growth remained above its 4.5 per cent reference rate and said that euro weakness and renewed rise in oil prices exerted inflationary pressure. The ECB had carefully primed markets for its sixth rate rise since November 1999 with a series of stern warnings over looming inflation risks. Markets have widely anticipated the rise but were divided over the size of the move. Eurozone July inflation was 2.4 per cent compared with the 2.0 per cent target ceiling the central bank has set.