ECB increases its rates by 0.50 points despite banking turmoil

The European Central Bank (ECB) again increased its main interest rates by 0.50 percentage points this Thursday, to combat inflation, judging that the banks in the euro zone are solid and “resilient” despite the turbulence affecting the sector.

However, the guardians of the euro were prudent and did not allude, as they had done up to now, to the need to continue increasing interest rates “significant”.

The ECB has been immersed since last summer in an unprecedented rate hike policy, but since last week doubts arose about its determination to maintain it due to the bankruptcy of the US bank Silicon Valley Bank (BLS) and concerns about the situation of the Credit Suisse.

The markets did not rule out the possibility of a rise of 0.25 percent, less than initially expected and announced last month by the issuing institute itself.

Now, the interest rates of the issuing institute of the euro zone are situated in a range between 3% and 3.75%, the highest level since October 2008.

“The ECB stays the course […] because any shock would have been interpreted as a weakness”, pointed out Jens-Oliver Niklaschfrom the bank LBBW.

Less inflation and more growth

“Prudence would like a pause [en el endurecimiento de la política monetaria] and that the increases be resumed later, but the ECB could judge that its credibility in the fight against inflation, already in a bad place, cannot afford it”, stressed analysts from ENG before the meeting.

Faced with the escalation of prices after the Russian offensive in Ukraine, the ECB began a cycle of unprecedented rate hikes in July, ending almost a decade of cheap money.

This tightening, carried out by all the big central banks to increase the cost of credit and slow price rises, has also contributed to weakening commercial banks.

But the battle against inflation is far from over.

Euro zone prices fell in February for the fourth consecutive month, to 8.5% year-on-year. However, so-called core inflation, which excludes energy and food, rose again to a record 5.6%.

In its new forecasts published on Thursday, the ECB He pointed out that inflation in the euro zone, made up of 20 of the 27 countries of the European Union (EU), should be lower and its growth rate higher than expected in 2023.

This improvement would be due to a lower boost in energy prices and a “better economy resilience”.

Eurozone inflation should reach 5.3% in 2023, compared with the 6.3% forecast at the end of December, and fall to 2.9% in 2024 and 2.1% in 2025.

And GDP should grow 1% this year -compared to the 0.5% forecast so far- and 1.6% in 2024 and 2025.

ECB President Christine Lagarde urged euro zone governments to “quickly start reducing” budget support for homes and businesses, since energy prices are falling, to avoid “increase inflationary pressure in the medium term”.

Prudence in the bags

Following Credit Suisse’s announcement that it would turn to the Swiss central bank for 50 billion Swiss francs (50.7 billion euros, $53.7 billion) in loans, markets rallied strongly at the open after sharp falls on Wednesday.

However, the main European stock markets limited their enthusiasm during the day. By 1:35 p.m., Paris was up 0.42%, Frankfurt 0.05%, London 0.08%, Madrid 0.32% and Milan 0.16%.

In New York, Wall Street opened in the red: the Dow Jones industrial index started with a loss of 0.56%, the technology component Nasdaq lost 0.37% and the S&P 500 0.49%.

In Asia, concerns about the effects of the SVB bankruptcy continued to weigh on Thursday’s session. Tokyo lost 0.8%, Hong Kong 1.72% and Shanghai 1.12%.

Source: AFP