ECB backs rate hike despite banking sector chaos

FAN Editor

The European Central Bank (ECB) lifted its three policy rates by 50 basis points for the sixth consecutive time, raising the benchmark for borrowing costs in the eurozone to 3.0% from 2.5%, the highest level since late 2008, as inflation is seen overshooting its 2% target through 2025.

“Hot inflation is still considered to be a big threat to financial stability, which is why for now, the ECB is sticking to the plan,” said Susannah Streeter head of money and markets, Hargreaves Lansdown.

CREDIT SUISSE TO BORROW UP TO $54B FROM SWISS NATIONAL BANK

The bank’s decision comes amid a string of issues for the banking sector, including the recent collapse of Silicon Valley Bank in the U.S. and Credit Suisse’s $54 billion lifeline from the Swiss National Bank.

“Reining in inflation appears to be the European Central Bank’s top priority – rather than calming the tremors that have shaken the banking system,” Streeter added.

The central bank for the 20 countries that share the euro has been locked in a fight to bring inflation in the currency bloc back to its 2% target, from 8.5% last month.

ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections.

US BANKS SHUN CRYPTO FIRMS AS REGULATORY PRESSURES MOUNT

“The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook,” the ECB said in a statement.

The central bank said its current macroeconomic projections were finalized in early March before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth.

“The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability,” the bank continued. 

“Its business-as-usual approach could be seen as vote of confidence in the European banking sector,” said Danni Hewson, head of financial analysis at AJ Bell. “That said, the ECB was at pains to make clear that it was acutely aware of current tensions and indicated it was ready and able to step in if things deteriorate further.”

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Reuters contributed to this report.

Free America Network Articles

Leave a Reply

Next Post

Macron shuns parliament to raise French retirement age

PARIS — PARIS (AP) — French President Emmanuel Macron imposed a highly unpopular bill raising the retirement age from 62 to 64 on Thursday by shunning parliament and invoking a special constitutional power. Lawmakers were shouting, their voices shaking with emotion as Macron made the risky move, which is expected […]