Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

European Central Bank sticks to its guns on interest rates despite market turmoil

European Central Bank sticks to its guns on interest rates despite market turmoil

Banking shares come under further pressure after the ECB says it must prioritise the battle against inflation over financial market jitters for what rate rises are doing to banks.
The European Central Bank (ECB) has maintained its fight against inflation and imposed a large set of interest rate hikes despite financial market turmoil.

Bank balance sheets have suffered because of the effect of interest rate increases, which have contributed to recent crises at Silicon Valley Bank and Credit Suisse.

But the central bank - responsible for monetary policy in the 20 nations which use the euro as their currency - stuck to its original plan to tackle inflation through rate rises.

Last week. it had been widely expected to impose the 0.5 percentage point hikes across its three main interest rates to maintain its battle against inflation.

Market speculation grew on Wednesday, though, that it would shy away from such rises given the market mayhem that had taken hold in the wake of Silicon Valley Bank's collapse - hitting the stocks of all major European banks hard.

It culminated in a rout for shares in major Swiss lender Credit Suisse, which later took a financial lifeline to shore up confidence.

The ECB said it took its decision because "inflation is projected to remain too high for too long", describing its banking system as "resilient" despite reportedly warning EU politicians that some euro area banks could be vulnerable.

'Elevated level of uncertainty'

Banking shares on the continent took another hit in response to the rate rises though the jitters later subsided as the market focused on the central bank's assurances that it was aware of the sensitivities surrounding its rate hikes.

"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 statement from the ECB said.

"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."

It highlighted the current "severe" market tensions as a potential risk to the eurozone economy as the pressure on banks could dampen the provision of credit.

At a news conference, ECB president Christine Lagarde added: "The [economic] projections that we have do not incorporate any of the most recent developments and certainly not the impact of the most recent financial tensions that we have observed on the markets.

"So there is a level of uncertainty that has been completely elevated because of that [and] that is the reason why
we reinforce the principle of data-dependency [in our future policy decisions]."

'We see this as a wise move'

Shares in Credit Suisse ended the day 20% higher on the back of its bailout while investors put the ECB's rate hikes behind them to allow a meagre recovery in wider bank shares.

The meltdown for banking and many other financial services stocks reflects deep concerns for the health of their balance sheets due to rising interest rates.

The aggressive pace of rate hikes across Western economies has raised the cost of servicing their debts and placed a greater strain, to varying degrees, on their balance sheets.

Regulators, including those in the UK, have insisted that there is no systemic risk and that banks are far better capitalised than they were before the financial crisis.

Matthew Ryan, head of market strategy at financial services firm Ebury, said: "The ECB stuck to its guns today in delivering a 50bp rate hike, despite the acute uncertainty in markets triggered by the collapse of Silicon Valley Bank and the slump in European banking shares.

"We see this as a wise move, as not only does sky-high core inflation and a resilient euro area economy warrant additional policy tightening, but the larger hike sends a clear signal of confidence in the strength of the European banking sector.

"In our view, a 25bp rate increase may have also raised question marks about the ECB's credibility, given the thorough hawkishness of the bank's recent forward guidance."
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
G7 Leaders Fail to Reach Consensus on Key Global Issues
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
×