The European Central Bank (ECB) raised interest rates by a quarter percentage point to a three-year high of 2.75 per cent today.
The widely expected move marks the third rise in euro zone rates since December 2005. Financial institutions are expected to react to today's rate hike by passing on the increase to borrowers.
The Euro sculpture in front of the European Central Bank in Frankfurt, central Germany.
Today's increase will add between €13 and €15 per month for every €100,000 borrowed meaning that the average monthly mortgage will rise by between €35 and €45.
Inflation accelerating further above the ECB's target, economic growth and signs of a pick-up in consumer spending all contributed to market expectations of tighter policy.
The ECB rate had been at 2.5 per cent since the bank's March meeting.
Falling equity markets and a strengthening euro meant the ECB was unlikely to go for a chunky half per centage-point rise, but rates are now at their highest level since early March 2003.
The focus is now on ECB President Jean-Claude Trichet, who will host a news conference explaining the rate decision at 12.30 GMT in Madrid, where the Governing Council held one of its twice-yearly policy meetings away from the ECB's Frankfurt home.
ECB watchers are looking for any hint that the ECB might step up its so-far quarterly pace of rate increases, and for revised 2006/07 growth and inflation forecasts.
The ECB also said the interest rate on its deposit facility would be increased, to 1.75 per cent, and the rate on the marginal lending facility would rise to 3.75 per cent.