The European Central Bank has gone ahead with a planned 50 basis point hike in interest rates, but hasn’t spoken about what might happen with the market turmoil rocking Credit Suisse.
The deposit rate was raised to 3%, but did not provide any indication of the future path of rates.
After being swept up in the turmoil sparked by the collapse of Silicon Valley Bank, Credit Suisse shares took their first plunge just as the ECB’s Governing Council convened for its two-day meeting, raising concerns over the health of the banking sector in general.
Despite a warning that inflation is set to stay “too high for too long”, ECB officials refused to give any indication of what they are likely to do the next time they fix borrowing costs, in May. This breaks with the practice of recent meetings amid heightened financial stability concerns.
“The high level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s key rate decisions,” the ECB said in a statement.
The central bank “is closely monitoring the current market tensions and stands ready to respond if necessary to preserve price stability and financial stability”.
The quarterly economic projections that accompanied the announcement showed inflation slowing more this year than previously thought, along with larger price hikes excluding volatile items like food and energy.
The ECB firmly believes that its battle with inflation is not over yet. The question now is whether recent banking woes limit its ability to weather rising prices which, while moderating, remain closer to double digits than its 2% target.
ECB Vice-President Luis de Guindos told EU finance ministers on Tuesday that individual banks could be vulnerable to rising rates, although he said lenders in the region are far less exposed than their own US counterparts.
Markets think the ECB will now be more cautious reducing bets on the peak of the rate-hiking cycle to 3.2% from 4.2% a week ago.