Europe’s central bank hikes rates by 50 bps despite bank chaos

Europe’s central bank hikes rates by 50 bps despite bank chaos


The European Central Bank has carried through with a large interest rate increase Thursday, brushing aside predictions it might dial back as US bank collapses and troubles at Credit Suisse fed fears about the impact of higher rates on the global banking system.

The ECB hiked rates by half a percentage point Thursday, underlining its determination to fight high inflation.

In a post-meeting statement, the bank called the banking sector in the 20 countries using the euro currency “resilient,” with strong finances.

Europe’s central bank hikes rates by 50 bps despite bank chaos

Explained: Why the fall of Silicon Valley Bank matters to India
 
Explained: Why the fall of Silicon Valley Bank matters to India
 

It says it’s “monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.”

ECB head Christine Lagarde said last week that it was “very likely” the bank would raise its benchmarks by a half-percentage point, part of a series of rapid rate hikes aimed at getting inflation down from 8.5 per cent — far above the bank’s target of 2 per cent.

That was before Silicon Valley Bank in the US went under last week after suffering losses on government-backed bonds that fell in value due to rising interest rates.

Then, globally connected Swiss bank Credit Suisse saw its shares plunge this week and had to turn to the Swiss central bank for emergency credit.





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