The European Central Bank was the first to be called upon to respond to new data shaped by the turmoil in the US regional banks and new problems in Credit Suisse as a result of the rapid tightening of monetary policy at the international level.

The ECB has also been the first to attempt to tackle the new phase that monetary policy is entering in order to curb still-high inflation, which requires a balance between tightening and measures to mitigate the effects of a new financial crisis.

So she faced the following dilemma: inflation or banks? With the market-famous “Trichet Mistake” of July 2011 “chasing” her, when in the midst of the debt crisis developing in the eurozone, she went on to further increase interest rates – downgrading Portugal to junk just one day later. A mistake that led his successor Mario Draghi to make the famous promise in July 2012 that the ECB would do everything to save the euro “whatever the cost.”

On Thursday, he extended his expected 50 basis point rate hike, buying himself time to see how things play out.

The ECB decided to balance things out, perhaps buying itself some time and waiting to see how things play out as the Credit Suisse crisis and the market sell-off erupted on the first day of its two-day meeting. To avoid panic in the markets, the ECB has applied what has already been repeatedly reported, namely, proceeded with another significant increase in interest rates by 50 basis points. If the course changed, there were fears that the markets would take it as a signal that something very serious was happening. At the same time, it sent a strong signal that European banks are resilient and have much stronger capital and liquidity than in 2008. However, this decision was only made on Thursday morning after the intervention of the Swiss Central Bank in support of Credit Suisse. and the calmness of the markets clearly makes things easier for him. And all because literally the day before, on Wednesday, there was concern in the board of directors. The ECB was tense, seeing a strong correction in the stock markets. “If it weren’t for the intervention in Switzerland, the ECB would not have raised interest rates because the markets would have collapsed,” K’s sources state.

There is no doubt that the position of the “doves” during the February meeting, when they insisted on not including a phrase-commitment, even indirectly, in terms of the size of the tightening, turned out to be correct. In any case, the “orientation” on the interest rate was removed from the ECB statement and emphasized that decisions will depend on the data.

However, according to analysts, decisions will be entirely determined by the reaction of the markets. This is the main element that the ECB will pay attention to in the next period. Although the markets now give a high probability that the tightening cycle is coming to an end, analysts do not agree with this. “This is too optimistic, given that structural inflation remains constant,” notes Société Générale.

For its part, Goldman Sachs believes that further rate hikes, despite market volatility, are likely because (1) the risk of serious contagion in the banking sector still appears limited, (2) structural inflation is likely to remain high in the coming months. a few months. and (3) Lagarde stressed that the ECB has separate tools to deal with the problems of high inflation and financial stability. Thus, Goldman expects growth by 25 bp. in May (from the previously expected 50 r.m.) and 25 r.m. in June with a final interest rate of 3.5% (from 3.75% earlier).