Undeterred by Fears of a Banking Crisis, ECB Raises Interest Rates by 50bps
The European Central Bank (ECB) rallied to raise three of its key interest rates by 50 basis points (0.5%), helped by the bloc’s continued inflation data. Christine Lagarde, president of the institution, said that the banking sector in Europe is strong and that the institution is ready to provide liquidity if needed.
European Central Bank raises rates to fight inflation
The European Central Bank (ECB) has decided to continue raising interest rates in the fight against inflation. On March 16, the institution announced a 50 basis point (bp) increase in three key interest rates, raising the main refinancing rates and rates on the margin credit line and deposit line to 3.50%, 3.75% and 3.00%. respectively, from 22 March.
Christine Lagarde, President of the ECB, cited inflation as the main reason for this increase. statement that “inflation is projected to remain too high for too long.” While inflation figures are falling from 9.2% in December to 8.5% in February, the institution’s goal is to return to a stable 2%. The ECB predicts it will get closer to that target in 2025, expecting inflation to fall to 2.2% by then.
The recent decline was mainly driven by lower energy prices; however, food and beverage prices rose by 15% over the same period.
The banking system is considered “sustainable”
The institution did not directly address the recent events that brought Credit Suisse, one of the largest Swiss banks, to the brink of collapse, eventually receiving a $54 billion bailout from the Swiss National Bank.
However, the ECB stated:
The Eurozone banking sector is stable, has strong capital and liquidity. In any case, our policy toolkit is fully equipped to support the liquidity of the euro area’s financial system, if necessary, and to maintain a smooth transition of monetary policy.
The collapse of Credit Suisse came after the recent closure and intervention of three US banks – Signature Bank, Silicon Valley Bank and Silvergate Bank – which have investors from all over the world. fearing this could trigger a banking crisis internationally.
However, the ECB has made it clear that it remains committed to its decision to bring inflation down, explaining that it “will be ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target.”
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