Mumbai: The European Central Bank (ECB) has raised its base interest rate for the eurozone by 0.25 percentage points to 4.0 per cent, effective June 6.

The quarter percentage hike, the eighth since the ECB first started tightening monetary policy in December 2005, after a 30-month freeze at 2 per cent, doubles the key interest rate in just 18 months.

Analysts expect the current hike to be followed by two or more similar increases later this year.

The increase comes amid a growing optimism in the eurozone economy. Spearheaded by a resurgent Germany, economic growth in the EU is expected to be around 2.5 per cent this year and next.

Unemployment in the eurozone, which is already at a 15-year low of 7.1 per cent, is also expected to fall further.

But, with the euro at near-record levels against the dollar and other currencies, some European leaders like the new French president Nicolas Sarkozy are worried that the ECB could damage the eurozone''s recovery by raising borrowing costs and forcing the euro even higher.

The ECB rate hike comes ahead of a planned meeting of the Bank of England''s monetary policy committee. BoE, however, is expected to leave UK rates unchanged after last month''s quarter point hike.

In the euro zone, business and consumer confidence have been rising, while growth — at 3 per cent in the first quarter — is largely keeping pace with last year''s levels and unemployment is falling.

The International Monetary Fund said early this week that eurozone interest rates need to rise further to counter a pickup in inflationary pressures as the economy moves "from recovery to upswing."

The Fund, however, did not say how much tightening would be needed to tackle inflation. The head of the IMF''s European department, Michael Deppler, said there was no need for rates to rise above 4.5 per cent this year.

Year-on-year inflation in the euro zone was 1.9 per cent in May - unchanged from the previous two months, and around the ECB''s guidelines of just under 2 per cent.

It is unlikely that the ECB rushes into further increases beyond the current one from 3.75 per cent to 4 per cent.