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Interest is finally increased by US Federal Reserve

The US Federal Reserve has made its first interest rate increase since December 2008 after holding extraordinarily low rates to prop up the financial system.

The move to raise the discount rate to 0.75pc from 0.5pc pushed the dollar higher to $1.35 against the euro, its strongest level against that currency in nine months.

And it comes amid concerns over Greece's budgetary woes.

Analysts have said that if countries such as Greece implemented the harsh fiscal measures needed to cut their debt, this would put pressure on eurozone growth.

The European Central Bank would then be forced to cut back on tightening its monetary policy.

The US central bank cited an improvement in financial market conditions for its decision to increase the rate, which gives a positive signal about the US economy.

Meanwhile, the Greek Finance Minister George Papaconstantinou has said that the EU should be more specific about how it intends to support Greece should a debt crisis emerge.

Minister Papaconstantinou said that this would help lower Greece's borrowing costs and would also ensure a bailout would not be necessary.

He also said that Greece had not ruled out seeking help from the International Monetary Fund (IMF), although he said the country respected the Eurozone's principle of dealing with any sovereign debt problems itself.

This week, the EU failed to give Greece a bailout after policy meetings, and yields on Greek government debt are rising again as markets remain concerned about the sustainability of the nation's finances.

Critics have blamed the European Monetary Union (EMU) as the main reason behind Greece's current problems.

Only a few other central banks around the world have begun to tighten policy, with Australia leading the way last year while China took several steps to curb bank lending.

The US Federal Reserve has cautioned that recovery from the recession is likely to be sluggish and has said it expects to keep the federal funds rate near zero for "an extended period.

"Like the closure of a number of extraordinary credit programmes earlier this month, these changes are intended as a further normalisation of the Federal Reserve's lending facilities," the Federal Reserve said in a statement.


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