The ECB will maintain the rate hike despite the turbulence, but it plans to put the brakes on
There was no possible way back: the European Central Bank (ECB) was going to raise interest rates another 50 basis points yes or yes. It was confirmed two weeks ago by the president of the banking regulator, Christine Lagarde, and confirmed by her vice president, Luis de Guindos. However, the unexpected banking crisis started by Silicon Valley Bank and encouraged by the crash of: Credit Suisse could make the Governing Council reconsider at least one cut in the rise.
In principle, the ECB intends to continue on the path of rate hikes to keep inflation at bay, despite the turbulence in financial markets following the failure of Silicon Valley Bank and the implosion of Credit Suisse. Until yesterday, the banking supervisor was clear about raising the price of money in the euro area by half a percentage point, up to 3.5%, so the deposit facility, for which money is paid to banks over one day , would be at 3%. However, the hostile stock market environment has raised fears of contagion to many other banks around the world, as happened in 2008 after the collapse of Lehman Brothers.
But the general opinion of analysts and markets is that the ECB will maintain its plans for an increase of half a percentage point because it has not yet won the fight against inflation. Headline inflation slowed to 8.5% in February in the euro area, but core inflation rose to 5.6%.
According to Efe, the economist for Europe of the DWS manager, Ulrike Kastens, considers that "the ECB is far from reaching its inflation target in the medium term, therefore, as was already foreseen in the February meeting, it is likely to raise key interest rates again by 50 basis points Core inflation, which rose to 5.6% in February, is likely to have alarmed members of the ECB Governing Council, not least because of the prospects that it will continue to rise," says Kastens. In addition, she believes that the labor market remains strong, wages will rise, and labor shortages will also continue to cause wage increases.
However, Kastens also points out that the first signs of a slowdown are visible, the economy is slowly losing momentum and loans, especially in the real estate market, are falling significantly.
Senior economist at Generali Investments Martin Wolburg believes "that the ECB will opt for increases of 50 basis points in the next two meetings (March and May)."
"Disinflation induced by energy prices will gain momentum in the coming months. But core inflation will remain much more stable," according to Wolburg.
Bank of America's chief European economist Rubén Segura-Cayuela expects a 50 basis point rise on Thursday and indications that May's rise will also be half a percentage point unless core inflation improves sooner. Segura-Cayuela believes that "the ECB is on the way to excessive tightening" because he considers that the economy has been and continues to be weak.
Allianz Global Investors' global investment director of Fixed Income, Franck Dixmier, expects a 50 basis point rate hike on Thursday and that investors will pay more attention to any indication of the pace of future hikes. "Given underlying inflationary pressures persist, we expect the central bank to continue to tighten monetary policy" as the economy is resilient, especially services, Dixmier said.
In this climate of financial panic, the ECB has begun to contact the European banks that it directly supervises to find out what possible exposure they have to Credit Suisse. In the case of Spain, the ECB is requesting information from Spanish banks through the Bank of Spain. The ECB has declined to comment on its possible actions in this regard. In any case, according to other financial sources, the action of the European banking regulator does not in itself imply a weakness in the sector or in the Swiss entity, but rather that it is "normal" in the face of a stressful situation such as the one experienced at this time. .