The European Central Bank still adheres to the policy of fighting high inflation and announced to raise interest rates by 50 basis points to 3.5%, although the recent bankruptcy of some banks in the United States has led to turmoil in the global financial market.
This is the sixth consecutive rate hike in the euro zone. The ECB was the first major central bank to issue a monetary policy decision since the collapse of Silicon Valley Bank and two other regional banks in both countries, raising fears of a repeat of the 2008 financial crisis.
Although the ECB cut its inflation forecasts, the data still suggested that price growth remained above the 2% target it set for the next few years, suggesting a prolonged tightening of policy is likely.
Before the ECB’s announcement, Credit Suisse announced it would improve its financial position by borrowing about $54 billion from the Swiss Central Bank.
UBS said its policymakers were closely monitoring the current market volatility and were prepared to respond if necessary to maintain price stability and fiscal balance in the euro area.
market stability
At the same time, Reuters quoted people familiar with the matter as reporting that European Central Bank officials agreed on the 16th to raise interest rates again sharply after Credit Suisse received a rescue plan and stabilized the market.
Sources pointed out that the sudden decline in Credit Suisse’s stock price has led to the European Central Bank’s plan to raise interest rates by 50 basis points, and the outlook for the economy and inflation has also been questioned.
But the SNB’s decision overnight to backstop Credit Suisse helped stabilize financial markets and gave most policymakers the confidence to proceed with raising rates as originally planned, the sources added.
On the other hand, Eurogroup Chairman Pascal Donoghue said in an interview with the media that he has full confidence in the ability of major European banks to deal with the current economic turmoil.
Donoghue said European creditors have sufficient capital reserves to manage the current risks to the global banking and financial system, but noted that there were no signs of full relief.
Donoghue said major banks were also preparing for further rate hikes.
delicate situation
On the other hand, European Central Bank Governing Council member Peter Kazmir said that current events in financial markets will not change his view on the need to continue raising interest rates in a timely manner.
“A 50 basis point increase in interest rates is an unavoidable and necessary issue,” Kazimir, who is also the governor of the Slovak Central Bank, said in a statement on the bank’s official website on the 17th, adding, ” It’s a delicate situation, but we’re not at the finish line yet.”
Core inflation, which strips out volatility, hit 5.6 percent in February, which is “very tricky,” Kazmir said, noting that while the rate hikes are showing signs of gain, the risk of rising prices “remains high.” “.