European Central Bank

unexpectedly raised its main refinancing rate by a quarter-point to 3.50% Thursday, indicating Europe's monetary authorities feared the region's economic recovery was increasing inflationary pressures.

Although the ECB had made clear interest rates would rise in the near future, and speculation over a rate hike has increased in the wake of hawkish comments by bank officials in recent days, most observers expected the bank's Governing Council to hold off raising borrowing costs for another couple of weeks. The ECB last raised rates by a quarter-point on Feb. 3.

The central bankers have repeatedly stressed that they will not be boxed in by the markets nor limited as to when they might change interest rates. But this is the first time the ECB has changed monetary policy at a meeting without a prearranged press conference. In a statement, the ECB said Thursday's hike continues the bank's "policy of countering emerging upside risks to price stability in a timely and pre-emptive manner."

Some bank watchers saw the next monetary policy meeting in Madrid, Spain, on March 30 as perhaps a more appropriate time to raise rates. While taking place outside the ECB's Frankfurt headquarters, that meeting has a prescheduled press conference, which would have afforded ECB President

Wim Duisenberg

an opportunity to explain the bank's action to the markets.

One could argue the ECB


been boxed in by the markets simply because it felt it needed to prove it could change rates whenever it wanted. It's difficult to see what else might have caused the bank to pull the trigger Thursday, since there has been little new economic data released since the ECB's last meeting two weeks ago. However, some exasperated observers might contend the ECB is staying consistent by showing the same inconsistency it has shown throughout its short tenure.

The ECB sets monetary policy for Germany, France, Italy, Spain, Portugal, the Netherlands, Belgium, Finland, Luxembourg, Ireland and Austria.