European Central Bank (ECB) President Christine Lagarde announces a new monetary policy decision.
Frederick Florin | Afp | Getty Images
The European Central Bank on Thursday announced a further rate hike of 50 basis points, signaling it is ready to supply liquidity to banks if needed, amid recent turmoil in the banking sector.
The ECB had signaled for several weeks that it would be raising rates again at its March meeting, as inflation across the 20-member region remains sharply above the targeted level. In February, preliminary data showed headline inflation of 8.5%, well above the central bank’s target of 2%.
Some market players questioned whether President Christine Lagarde would still go ahead with the move, given recent shocks in the banking sector. Credit Suisse shares tumbled by as much as 30% in Wednesday intraday trade, and the whole banking sector ended Wednesday’s session down by about 7%.
“Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points,” the ECB said in a statement.
This latest move brings the bank’s main rate to 3%. It was in negative territory before July last year.
“The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions,” the central bank said in the same statement.
Initial pressures on the banking sector emerged last week, when U.S. authorities deemed Silicon Valley Bank insolvent. The event threw international subsidiaries of the bank into collapse and raised concerns about whether central banks are increasing rates at a very aggressive pace. Goldman Sachs quickly adjusted its rate expectations for the Federal Reserve, due to meet next week — the bank now anticipates a 25 basis point increase, after previously forecasting a…
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