The European Central Bank raised benchmark euro zone interest rates today to 4 per cent, the highest level in nearly six years.
The raise will add an extra €15 to the cost of repayments on every €100,000 borrowed for a mortgage running for 25 years.
It is the eighth increase in about 18 months adding about €300 to the monthly repayments on a typical mortgage of around €300,000.
The quarter percentage-point rise, which had been widely expected, means that rates have doubled over the last 18 months as the region's economy has firmed and inflation risks persist.
It is the eighth increase in interest rates since December 2005 and brings Irish mortgage rates to their highest level for almost six years.
Strong warnings on inflationary risks from ECB policymakers in recent weeks have left financial market dealers virtually certain that rates will reach at least 4.25 per cent this year.
Business activity is expanding robustly, confidence is high and unemployment has fallen to its lowest level on record in the 13-nation euro zone, brightening prospects for consumer spending to surge, supporting economic growth this year at 2.5 per cent or higher.
With the economy powering ahead at the fastest pace this decade, the threat is rising that businesses will run out of operating capacity and start pushing up prices, while workers will demand higher wages.
The rate on the marginal lending facility was raised to 5 per cent and the rate on the deposit facility was raised to 3 per cent. The new rates take effect on June 13th.
The Labour party's spokeswoman on finance Joan Burton said the strategy of the ECB was "difficult to comprehend, given that European inflation remains at or below the target rate set by the bank itself."
"The cumulative effect of these increases has been to significantly diminish whatever benefit most families had expected to enjoy from the budget decision to increase mortgage interest relief," she said.
"One of the inevitable results of today's decision will be to strengthen the Euro vis-à-vis the dollar. This will have serious consequences for Irish companies, heavily dependent on exports to the United States, unless US interest rates rise also. "