The European Central Bank (ECB) has called for raising three of its key interest rates by 50bp (0.5%), driven by the persistence of the inflation figures reported by the bloc. Christine Lagarde, president of the institution, stated that the banking sector in Europe is resilient and that the institution is ready to provide liquidity if necessary.
The European Central Bank raises rates in the battle against inflation
The European Central Bank (ECB) has decided to continue raising interest rates in its war against inflation. On March 16, the institution announced a 50 basis point (bp) hike in its three key interest rates, bringing its main refinancing rates and the rates of the marginal credit facility and the deposit facility to 3.50%, 3.75 % and 3.00% respectively, as of March 22.
Christine Lagarde, president of the ECB, cited inflation as the main cause of this rise, stating that “inflation is projected to remain too high for too long.” Although the inflation figures have been falling, going from 9.2% in December to 8.5% in February, the institution’s goal is to return to a stable 2%. The ECB predicts that it will approach this target in 2025, expecting inflation to drop to 2.2% by then.
The recent drop was mainly led by the downward trend in the price of energy; however, food and beverage prices skyrocketed 15% during the same period.
The banking system is said to be ‘resilient’
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 euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve smooth monetary policy transmission.
Credit Suisse’s collapse comes after the recent closure and intervention of three US-based banks, Signature Bank, Silicon Valley Bank and Silvergate Bank, which have investors from around the world. fearing this could trigger an international banking crisis.
However, the ECB made it clear that it remains committed to its resolve to lower inflation, explaining that it “will stand ready to adjust all our instruments within our mandate to ensure that inflation returns to our medium-term target.”
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