Last updated: March 16, 2023 at 9:42 a.m. ET
First published: March 16, 2023 at 9:20 a.m. ET
The European Central Bank on Thursday pushed ahead with its plan to raise interest rates by 50 basis points, or half a percentage point, despite jitters in the banking sector, warning that “inflation is set to stay too high for too long. “.
At the same time, the ECB said future decisions would depend on economic and financial data, signaling a meeting-by-meeting approach and a move away from a policy of so-called forward guidance aimed at massaging market expectations. around future movements.
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The European Central Bank on Thursday pushed ahead with its plan to raise interest rates by 50 basis points, or half a percentage point, despite jitters in the banking sector, warning that “inflation is set to stay too high for too long. “.
At the same time, the ECB said future decisions would depend on economic and financial data, signaling a meeting-by-meeting approach and a move away from a policy of so-called forward guidance aimed at massaging market expectations. around future movements.
The ECB said last month it planned to raise rates by 50 basis points at Thursday’s meeting, but that was called into question after pressure on troubled Swiss lender Credit Suisse sparked concerns. concerns about the exposure of eurozone banks.
Credit Suisse shares stabilized after the bank announced Thursday morning that it would tap $54 billion in credit from the Swiss National Bank.
The ECB said future moves would depend on economic and financial data given a “high level of uncertainty”. The ECB said it was closely monitoring the current tensions in the markets and stood “ready to react if necessary to preserve price stability and financial stability in the euro area”. The ECB said the eurozone banking sector is “resilient, with strong capital and liquidity positions.”
“The decision not to provide further forward guidance on interest rates could be seen as dovish, given that many policymakers have said in recent weeks that they expect to raise rates further in May and beyond. beyond,” said Jack Allen-Reynolds, deputy chief. eurozone economist at Capital Economics, in a note. “But the lack of forward guidance likely reflects growing divisions within the Board of Governors.”
The ECB faced a dilemma heading into Thursday’s meeting, analysts said.
The lack of a hike after last month’s pledge would have shaken the ECB’s credibility, but policymakers also seemed unwilling to disappoint those calling for a smaller hike or no hike at all, said Fawad Razaqzada, analyst at Forex.com and City Index, in a note. .
By providing no forward guidance, it provided “as accommodative a rate hike as you would have seen under the circumstances,” he wrote.