The ECB is not influenced by the financial panic and raises interest rates another half a point to 3.5%
The European Central Bank has decided to follow the strategy announced weeks ago and raise interest rates half a pointas a way to fight inflation. Thus, the price of money if it will be at 3.5%which augurs new rises in the Euribor and an increase in the cost of variable-rate mortgages.
In the statement released by the institution before the ECB president, Christine Lagarde, appears at a press conference to make her decision public, the ECB ensures that "the high level of uncertainty reinforces the importance of a data-driven approach to Governing Council decisions on interest rateswhich will be determined by their assessment of the inflation outlook in light of new economic and financial data, core inflation dynamics, and the intensity of monetary policy transmission."
Although it is not a surprise that the institution has made the fight against inflation its main battle horse, the turbulence in the financial markets due to the bankruptcy of the US bank Silicon Valley Bank (SVB) they have awakened the specter of the crisis unleashed in 2008 after the bankruptcy of Lehman Brothers and the possibility that the banking crisis unleashed a new recession on both sides of the Atlantic. For this reason, one of the questions was whether the Governing Council of the ECB was going to bet on prudence as a way of not adding fuel to the fire and, therefore, was going to temper its rate hike. Inflation in the euro zone, although it moderated in February to 8.5% compared to 8.6% in January, is still far from the 2% that the ECB sets as the appropriate target. In addition, food inflation has climbed to a record 15%, which is putting the economies of the most vulnerable households against the ropes.
On the possibility that this decision triggers a bank panic, the ECB is willing to act with the tools at its disposal. "The Governing Council is closely monitoring the current tensions in the markets and stands ready to respond as necessary in order to maintain price stability and financial stability in the euro area. The banking sector in the euro area euro has resilience and strong capital and liquidity positions. In any case, the banking regulator has "all the necessary monetary policy instruments to provide liquidity support to the euro area financial system if necessary and preserve the smooth transmission of monetary policy".
Despite the questions raised by the bankruptcy of SVB and its possible contagion to European financial institutions, the messages from the community institutions have been calm in recent hours. The European Commission repeats that exposure to European financial institutions is very low and that European banks are much better prepared now than in 2008, even if not all the fringes of the Banking Union have been completed. However, on Wednesday panic took hold of the European parquets after four banks were suspended from trading. The origin of the chaos was the bad situation of Credit Suisse, an entity that has recognized "material weaknesses" in its accounting. The bank has been forced to borrow 50 billion from the Swiss National Bank to strengthen its liquidity.
