ECB hikes interest rate to 4.25%

The European Central Bank raised interest rates to a seven-year high to fight inflation even as economic growth cools.

The ECB's Governing Council, meeting in Frankfurt, increased the benchmark lending rate by a quarter point to 4.25 percent yesterday.

Policymakers say they're worried that the fastest inflation in 16 years will develop into a wage-price spiral as workers demand more pay to compensate for rising costs. The risk is that higher interest rates deepen Europe's economic downturn. France and Spain have already said that the ECB may not be paying enough attention to the growth outlook.