The ECB is torn between appeasing the banking panic or raising rates in its battle against inflation
Lagarde will have to decide whether to raise the price of money by 0.5, as planned, or limit it to 0.25. The decision comes after the Swiss National Bank confirms that it will give Credit Suisse the $54 billion it needs to “strengthen its liquidity.”
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Euskaraz irakurri
Euskaraz irakurri: Europako Banku Zentrala, ataka estuan: banketxeen izuari aurre egin ala iragarritako tasen igoera gauzatu
What seemed sung is no longer so. The collapse of the Credit Suisse stock market, which fell 24% yesterday, and the bank panic generated throughout Europe, will mark the meeting of the European Central Bank (ECB) that must decide between reassuring the markets with a smoother rise of interest rates (0.25) or maintain its credibility and continue with the path of increases begun a few months ago in its battle against inflation, that is, increase rates by half a percentage point (0.5).
The ECB had shown for weeks its willingness to raise the price of money in the euro area today by half a percentage point, to 3.5%. All this, arguing that the battle against inflation has not yet been won and despite the turbulence in the financial markets after the bankruptcy of the American Silicon Valley Bank (SVB). The objective was to ensure the ease of deposit.
However, the Credit Suisse debacle has raised doubts in the ECB’s Governing Council, and intense discussion expected. According to financial analysts, more and more voices are betting on a less aggressive strategy, and hence, speculation has begun that the ECB could opt for a smaller increase, of a quarter of a point.
However, with that option the ECB would lose credibility and send an alarm message. Furthermore, Europe is far from reaching its inflation target. Headline inflation slowed to 8.5% in February, but core inflation rose to 5.6%. The ECB maintains that its purpose is to bring inflation to 2%.
The ECB is also publishing today its new forecasts for inflation and growth in the euro area.
Credit Suisse situation
Meanwhile, Switzerland’s second bank has announced that it has borrowed 50 billion Swiss francs (about $54 billion) to the Swiss central bank to “preemptively strengthen its liquidity”, as explained in a statement released this morning
He Swiss National Bank (BNS) reported yesterday that, if necessary, it would provide liquidity to Credit Suisse, but assured that this bank complies with the strict liquidity and capital requirements that are required of all Swiss financial institutions to guarantee their stability.
Credit Suisse – hard hit by mistrust in its management and in the banking system in general after the bankruptcy of three banks in the United States in one week – asked the SNB and the Swiss Financial Market Supervisory Authority (FINMA) the day before to make a strong statement of support to calm the markets.
Both institutions issued a joint statement stating that despite the problems in the financial sector in the United States “there are no indications that point to a risk of contagion for Swiss entities.”
Source: Eitb
Alia is a professional author and journalist, working at 247 news agency. She writes on various topics from economy news to general interest pieces, providing readers with relevant and informative content. With years of experience, she brings a unique perspective and in-depth analysis to her work.
