ECB raises interest rates by 0.5% as bank shares wobble

European Central Bank (ECB) policymakers announced on Thursday that they would continue with a planned 0.5% interest rate hike as the institution grapples with inflation and financial uncertainty amid the turmoil that has engulfed it. of financial markets after the recent collapse of the Bank of Silicon Valley (SVB) in the US.

The meeting comes a week after the collapse of the SVP and the news that Credit Suisse in Europe is also facing major difficulties.

This situation sparked fears of global financial turmoil and speculation that the ECB could change or even abandon its plan to raise interest rates. But the move took place as planned just after 2:00 pm local time (1:00 pm GMT/UTC).

The increase puts the ECB and the euro zone’s benchmark interest rate – the amount of interest charged to commercial lenders for borrowing money – at 3.5%. .

The changes take effect on March 22.

A statement released by the ECB on Thursday said: “The Governing Council is closely monitoring current market tensions and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The banking sector euro area is resilient, with strong capital and liquidity positions”.

Furthermore, it stated that “the ECB’s policy toolkit is fully equipped to provide liquidity support to the eurozone financial system, if needed, and to preserve the smooth transmission of monetary policy.”

ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the same time, underlying price pressures remain strong. Still, the numbers mark a pronounced slowdown from 9.2% eurozone inflation in 2022.

ECB rates for commercial lenders are much lower than those paid by typical consumers or businesses for mortgages or loans, yet they tend to have a direct impact on these rates.

Euro recovers from Credit Suisse lifeline

The euro and Swiss franc regained some lost ground on Thursday on news that Credit Suisse would borrow up to CHF50 billion (€50.7 billion, $54 billion) from the country’s central bank.

The euro gained 0.4% after losing 1.4% the previous day – the biggest change in six months.

Some analysts saw this as a sign that the market’s mood was improving a bit, hours before the ECB interest rate announcement.

“Credit Suisse now has the influence of the Swiss National Bank behind its back, which is a central bank that doesn’t play around in times of crisis,” Matt Simpson, senior market analyst at forex trading platform City Index, told the news agency Reuters news.

“So ultimately I think that’s good for market sentiment.”

zc, js/msh (Reuters, AFP)