ECB

2023 - 3 - 16

ecb rate hike

ECB increases euro zone interest rates again today (RTE.ie)

The European Central Bank raised interest rates by 50 basis points today as promised, ignoring financial market chaos and calls by investors to dial back ...

We have no plans at the moment to reintroduce mortgage interest relief. The ECB today predicted GPD growth of 1% for 2023, up from its prediction of 0.5% in December. Meanwhile, inflation for this year is predicted to come in at 5.3%, lower than its earlier forecast of 6.3%. Please review their details and accept them to load the content. "It is independent, it makes its decisions without approval from EU governments. That caused a domestic financial crisis for 2008. But one thing I would say, certainly to the banks, is that they can't have it both ways." We don't have that worry now." I do understand why they're doing it. "We do not anticipate any direct impacts but of course we are part of an integrated financial system and that is why it makes it all the more important that we continue to monitor developments closely and that is why the Financial Stability Group will continue to meet on an on-going basis and report to me as Minister." "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 ECB said. That left the ECB in a dilemma, pitting its inflation-fighting mandate against the need to maintain financial stability in the face of overwhelmingly imported turmoil.

Monetary policy decisions (European Central Bank)

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 ...

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. The decline will amount to €15 billion per month on average until the end of June 2023 and its subsequent pace will be determined over time. The Governing Council decided to raise the three key ECB interest rates by 50 basis points. 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.

European Central Bank hikes rates despite market mayhem ... (CNBC)

Some market players questioned whether President Christine Lagarde would proceed with a hike, given recent shocks in the banking sector.

the banking sector is currently in a much, much stronger position," Lagarde said during a news conference. The euro area banking sector is resilient, with strong capital and liquidity positions," the central bank said in the same statement. An open question remains: how quickly will the ECB proceed with further rate hikes? [Credit Suisse](/quotes/CSG.N-CH/) shares tumbled by as much as 30% in Wednesday intraday trade, and the whole banking sector ended the Wednesday session down by about 7%. 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 50 basis point hike. It now sees headline inflation averaging 5.3% this year, followed by 2.9% in 2024. The event threw international subsidiaries of the bank into collapse and raised concerns about whether central banks are increasing rates at too aggressive of a pace. "Inflation is projected to remain too high for too long. The ECB on Thursday also revised its inflation expectations. Overall, there is less deposit concentration — "Added to which, if it was needed, we do have the tools, we do have the facilities that are available, and we also have a toolbox that also has other instruments that we always stand ready to activate, if and when needed," she added, reiterating that the central bank is ready to step in, if required. One basis point is equal to 0.01%.

ECB raises eurozone interest rate despite banking sector fears (The Guardian)

Concerns half-point could set off domino-effect across financial industry knocked by Credit Suisse crisis.

Indeed, concerns about financial stability could lead to more moderate interest rate rises in the future.” The Swiss government had ample firepower to protect consumers and its institutions were “highly effective” and able to deal with financial shocks, Moody’s added. While the ECB recognised a link between the two, Lagarde said: “We don’t see a trade off between price stability and financial stability and handle them separately. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.” “Given recent events, we believe further asset sales are likely, in our view.” Credit Suisse declined to comment. While the share price rebounded on Thursday, speculation is mounting that Credit Suisse will be forced to spin off parts of the business or consider a takeover.

ECB keeps eye firmly on inflation amid banking crisis fears (POLITICO.eu)

Rate hike had been well flagged, but recent market turmoil had meant it was less than certain.

In a similar vein, Constâncio tweeted that central banks “should not ignore the signs from the markets.” “Every additional rate hike increases the risk of breaking something,” he said. Ahead of Thursday's rate move, former dovish ECB policymakers Lorenzo Bini Smaghi and Vítor Constâncio had warned that the central bank must avoid a repeat of the 2011 policy disaster. That move has gone down in history as a glaring policy error that scarred the ECB’s credibility for years. That should not be doubted.” After the collapse of two U.S.

The ECB was in a real bind over interest rates – but the Fed and ... (Sky News)

Europe's monetary policy regulator could have sparked a big sell-off in European shares had it shied away from a 0.5 percentage points rise which the market ...

The Bank, on the other hand, may be persuaded to keep rates on hold and leave it for a few more weeks. Jay Powell, the Fed chair, has been quite clear in the past that the Fed will not back off from sparking a recession if that is the price that needs to be paid for bringing inflation under control. Under those circumstances one would expect the Fed to raise its main policy rate, Fed Funds, from the current 4.5-4.75% to 4.75-5% and the Bank to raise its main policy rate, Bank Rate, from 4% to 4.25%. Both central banks, like the ECB, also have to weigh the battle against inflation against the risk of sparking a recession. The dilemma faced by the ECB will be faced next week by both the Had it shied away today from a half-point rise, which the market had been expecting earlier this week, it might have prompted some market participants to wonder what the ECB knew about the stability of the eurozone banking sector. A dilemma to be faced by the US and UK The ECB, as a key player in the maintenance of financial stability in the eurozone, might then have been forgiven for pausing to take stock of the situation. But the ECB was in a real bind. The market began to price in a quarter-point, not half-point, rate hike. The ECB was in a real bind over interest rates – but the Fed and Bank of England's task is slightly easier Under those circumstances, markets had fully priced in a rise in the ECB's main policy rate from 2.5% to 3%.