The European Central Bank lifted interest rates for the first time in almost three years to quell inflation even as Portugal became the third nation to succumb to the region's sovereign debt crisis.

ECB policy makers meeting in Frankfurt today raised the benchmark interest rate to 1.25 percent from a record low of 1 percent, as predicted by all 57 economists in a Bloomberg News survey. It also raised the marginal lending rate to 2 percent from 1.75 percent and increased the deposit rate to 0.5 percent from 0.25 percent, maintaining 75 basis-point corridors either side of the benchmark.

While ECB President Jean-Claude Trichet said last month that a move today is "certainly not the start of a series," investors expect two more increases to 1.75 percent by the end of the year as inflation accelerates and Germany's economy booms. The risk is that higher borrowing costs may boost the euro and exacerbate the sovereign debt crisis, which last night forced Portugal to follow Greece and Ireland in seeking a European Union bailout.

"The ECB has decided that it will tighten policy for the core countries like Germany that are doing well and leave the non-standard measures support in place for the periphery countries," said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. "The rate increase is appropriate and there will be another one as early as June."

David Fuller's view ECB President Jean-Claude Trichet had prepared the markets for this rate hike today, so it had already been priced in. More importantly, he also emphasised that it was "certainly not the start of a series", as people have seen from the ECB in earlier cycles. Consequently, forecasts of another rate hike in June or later in the summer are speculation at this stage. I believe the ECB will wait and see before deciding on another hike, the timing of which will be influenced by events, not least regarding commodity prices.

Mr Trichet is hoping to prevent a cycle of inflationary expectations at a time when rates remain historically low. The inevitable and uncomfortable fact of a 'one size shoe for all' policy on rates is that it is seldom ideal for everyone. ECB rates are currently too low for Germany but even today's modest increase will add to difficulties in Euroland's periphery countries, not least for people with adjustable rate mortgages.