The European Central Bank has raised interest rates by a quarter percentage point to 1.25 per cent as it looks to address concerns about rising inflation across the euro zone.

The move is the first of several anticipated over the next 12 months and will mean higher mortgage costs for roughly three-quarters of Irish homeowners. Banks are expected to move swiftly to increase rates by a similar amount for holders of tracker mortgages and, possibly by even more for holders of variable rate mortgages.

As a rule of thumb, for each quarter point increase in ECB rates, homeowners can expect to pay an additional €15 per month for every €100,000 of their mortgage, assuming they are on a 20-year loan.

The State's financial institutions have already moved to pass on the interest rate rises.

Bank of Ireland and ICS Building Society today confirmed all their tracker rates will increase by 0.25 per cent with effect from Wednesday, April 13th. The two institutions also announced increases to their fixed rate mortgages, with a rise of between 0.70 per cent and 1.30 per cent across fixed rates for owner occupier and buy-to-let customers. The new fixed rates will be effective from April 15th.

National Irish Bank (NIB) also said its ECB-linked tracker mortgages would increase in line with the rate rise. However, NIB said there would be no change to its variable home loan rate, which will remain at 3.40 per cent, and no increase to its fixed-rate mortgages.

Speaking this afternoon, ECB president Jean-Claude Trichet said the bank will continue to monitor inflation risks "very closely".

Monetary policy remains "accommodative," Mr Trichet said at a press conference in Frankfurt today. "It is essential that recent price developments do not give rise to broad-based inflationary pressures over the medium term."

Investors are predicting two more increases to 1.75 per cent by the end of the year as inflation accelerates and Germany's economy booms.

However, Mr Trichet said today's interest rate increase is not necessarily the start of a series. "We did not decide that it was the first of a series of interest rate increases," he said, adding that the bank would continue to take necessary measures to ensure price stability.

In an interview with CNN Mr Trichet said the ECB focuses on the euro area as a whole and its decision to raise interest rates today was based on the need to anchor inflation expectations.

It is "very important to avoid second-round effects" during the current inflation "hump," he said.

Tracker rates, which can move only in tandem with changes in the ECB rate, account for around 60 per cent of the Irish residential mortgage market. Banks have been losing significant sums on these rates for the past couple of years.

With Greece, Ireland and Portugal all being forced to rely on international bailouts and struggling to generate growth, the rate hike will carry risks. But the central bank believes it can tighten policy slowly enough to avoid doing serious damage.

Mr Trichet said all members and people in the euro zone benefitted from "the anchoring of inflation expectations", adding that it was good for confidence for all including those in difficulty.

The ECB feels re-establishing its inflation-fighting credibility is more important to avert an upward spiral of prices and wages. Euro zone inflation rose to 2.6 per cent last month, above the ECB's medium-term target of just below 2 per cent. Figures from the Central Statistics Office this morning show that inflation in Ireland jumped to 3 per cent last month, from 2.2 per cent in February and -3.1 per cent in the same month last year.

The increase is the first since July 2008. As the bank crisis broke, it started reducing rates in October 2008, bringing them to a historic low of 1 per cent in May 2009. There has been no change in the ECB rate since then. However holders of variable rate mortgages have seen their rates rise steadily over the past 18 months. Customers of Permanent TSB, for instance, have seen their variable rate almost double in that time from 2.69 per cent to 5.19 per cent.

“It is probably going to be the first of several moves but how close those moves come together and how aggressive those moves are is something that remains to be seen,” said financial analyst and mortgage adviser Karl Deeter.

Additional reporting: Bloomberg