The European Central Bank (ECB) has convened to raise three of its key interest rates by 50bps (0.5%), powered by the continuation of the inflation numbers reported by the bloc. Christine Lagarde, president of the institution, expressed that the banking sector in Europe was sturdy and that the institution was ready to give liquidity if needed.
European Central Bank Upping Rates in Fight Against Inflation
The European Central Bank (ECB) has chosen to keep increasing interest rates in its battle against inflation. On March 16, the entity announced a rise of 50 basis points (bps) in its three key interest rates, taking its main refinancing rates and the rates on the marginal lending facility and the deposit facility to 3.50%, 3.75%, and 3.00% respectively, effective March 22.
Christine Lagarde, president of the ECB, pointed to inflation as the major factor behind this hike, stating that “inflation is projected to remain too high for too long.” Although the inflation numbers have been decreasing, going from 9.2% in December to 8.5% in February, the goal of the institution is to return to a steady 2%. The ECB believes that it will get close to this goal in 2025, predicting inflation to come down to 2.2% by that time.
The recent reduction was primarily led by the energy price downtrend; however food and beverages prices rose by 15% during the same period.
Banking System Asserted to Be ‘Resilient’
The institution did not address directly the recent developments that took Credit Suisse, one of the largest Swiss banks, to the brink of collapse, eventually receiving a $54 billion bailout from the Swiss National Bank.
Nevertheless, the ECB declared:
The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to offer liquidity support to the euro area financial system if necessary and to keep up the smooth transmission of monetary policy.
The breakdown of Credit Suisse comes after the recent closure and intervention of three U.S-based banks — Signature Bank, Silicon Valley Bank, and Silvergate Bank — which has investors from all around the world worrying this might set off a banking crisis at an international level.
Nevertheless, the ECB made it clear it stays committed to its goal of reducing inflation, explaining it will “stand ready to modify all of our instruments within our mandate to make sure that inflation returns to our medium-term target.”
What do you think concerning the ECB’s recent interest rate rise? Let us know in the comments section below.
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