EUR | Mar 16, 2023

European Central Bank hikes interest rate by 50 basis points

Al Edwards

Al Edwards / Our Today

Reading Time: 2 minutes
The European Central Bank.

Inflation is a beast that has to be tamed.

That was the message from the European Central Bank today as it announced a further rate increase of 50 basis points  as banks’ share prices continue to go into freefall.

Inflation across the 20-country EU region is averaging 8.5 per cent, well above the ECB’s target of 2 per cent.

“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.

Christine Lagarde, president of the ECB (Photo: ECB)

“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,” said the President of the ECB, Christine Lagarde.

There is concern that western countries could be heading into financial turmoil akin to 2008. Last week, Silicon Valley Bank collapsed and some think this will cause a contagion. Bank stocks have taken a beating this week and there is a feeling of instability .

“Given the reforms that have taken place and I was around in 2008, so I  have a clear recollection of what happened  and what we had to do, we did reform the framework, we did agree on Basel III, we did increase the capital ratios… the banking sector is currently in a much, much stronger position.

Jerome Powell, chair of the Federal Reserve of the United States. (Photo: Reuters)

“Added to which, if it was needed, we do have the tools , we do have the facilities that are available and we have a toolbox that also has other instruments that we always stand ready to activate, if and when needed,” said Lagarde.

The ECB sees inflation in Europe falling to an average of 5.3 per cent this year and 2.9 per cent in 2024.

“We are determined to return back to 2 per cent in the medium term, that should not be doubted, the determination is intact,” said the President of the ECB.

All eyes are on the Fed Chair Jerome Powell to see just high he will raise interest rates on Wednesday.


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