The European Central Bank has hiked interest rates for the second time in four months in an attempt to combat inflation in the Eurozone.

Interest rates of the ECB’s benchmark lending rate will increase by 25 basis points to 1.5 per cent starting from the 13 July 2011.

Rates on the ECB’s marginal lending facility will also increased by 25 basis points to 2.25 per cent from the same date.

The interest rate on the deposit facility will be increased to 0.75 per cent.

Jean-Claude Trichet, president of the European Central Bank said the current economic environment is demanding and requires decisive action.

He explained, ‘Euro area countries must, as a minimum, comply with their fiscal consolidation commitments for 2011 and beyond, as foreseen under the respective excessive deficit procedures.

‘Adequate and more frontloaded adjustment should ensure that structural fiscal consolidation targets are met, in line with the ECOFIN Council recommendations, and any better than expected economic and fiscal developments should be exploited to achieve faster deficit reduction.’

Trichet said it remains essential that substantial and comprehensive structural reforms are urgently implemented in the euro area to strengthen competitiveness, flexibility and longer-term growth potential.

He added, ‘This is particularly relevant for countries with high fiscal and external deficits or with past losses in competitiveness. We welcome the introduction of the European Semester, including the recent submission of countries’ National Reform Programmes that incorporate commitments made under the Euro Plus Pact.

‘We also support the European Council conclusions calling for more ambitious and well-defined reforms that should be frontloaded in order to foster competitiveness.’