Bank decides to raise interest rate by 50 basis points European Central Bank during today’s meeting. The banking crisis that began with its collapse Silicon Valley Bank in the United States and crossed to the other side of the Atlantic, undermining the credibility of Credit Suissecomplicates the ECB’s efforts to control it inflation V Eurozone. However, the ECB chose not to deviate from its prescribed course, insisting that banks are sound and committed to supporting them with liquidity if necessary.

It is noted that some analysts and investors expected a smaller increase in interest rates than the 50 basis points that the ECB already announced last month, due to turmoil in the banking sector. But, as it seems, d.s. The ECB chose not to veer off course and focused on inflation, which the report says is expected to remain too high for a long time to come.

In fact, speaking at a press conference, ECB President Christine Lagarde clarified that there were no other interest rate proposals other than a 50 basis point hike. The decision was made by an overwhelming majority in record time, he said, although he noted that 3-4 board members. they advocated giving more time to reduce uncertainty.

“Rising levels of uncertainty reinforce the importance of a data-driven approach to policy decisions. at interest rates, ”the message emphasizes. This time around, the central bank gave no indication of its next move, thus giving itself a free hand given the liquidity situation in the banking sector.

As Christine Lagarde explained, it is currently impossible to determine the future path of interest rates, as it depends on inflation data, core inflation dynamics and monetary policy transmission. If the ECB’s central economic scenario is confirmed, “we still have a long way to go,” the president explained.

The ECB is monitoring developments – ready to act

The ECB says it is monitoring market tensions and stands ready to respond as needed to maintain price stability and financial stability in the eurozone.

“The eurozone banking sector is resilient, with a strong capital position and liquidity,” the statement said, while the ECB assured that it has all the tools at its disposal to support the financial system with liquidity, if necessary.

Both Christine Lagarde and ECB Vice President Luis de Gintos assured during the press conference that banks are resilient, have high levels of capital and liquidity, and have limited reliance on Credit Suisse in the event of US bank failures.

The industry is much stronger than it was in 2008, Lagarde said, when asked about the similarities between the current period and the global financial crisis. In any case, Lagarde added, ECB staff can get creative if necessary – as they have done so far – in the event of a liquidity crunch.

New forecasts for the Eurozone

The ECB’s new macroeconomic forecasts, which were completed before banking tensions erupted, point to inflation at 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025.

Core inflation is expected to reach 4.6% in 2023, higher than the December forecast. It is then expected to decline to 2.5% in 2024 and 2.2% in 2025.

Growth forecasts have been raised to 1% for 2023 and 1.6% for 2024 and 2025.

Interest rates

From March 22, 2023, the interest rate on the main refinancing operations, as well as the interest rates on the margin financing line and the line for accepting deposits will be increased to 3.50%, 3.75% and 3.00%, respectively.