The European Central Bank has raised interest rates by half a percentage point — its first increase for more than a decade — while pledging to prevent rising borrowing costs from sparking a eurozone debt crisis amid political turmoil in Italy.

The ECB said in a press release after its governing council met in Frankfurt that it “judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting” because of higher than expected inflation and the support of its new bond-buying scheme. The central bank had said last month that it would raise rates by a quarter point.

The euro gained more than 0.6 per cent against the dollar to rise to above $1.02. Concerns over global growth and inflation pushed the common currency to below parity last week.