ECB interest rate hike plans overshadowed by banking turmoil | – #ECB #interest #rate #hike #plans #overshadowed #banking #turmoil
Summary ECB hints at 50 bps hike Markets doubt decision and price 25 bps We see financial turmoil derail plans for future rate hikes Inflation to remain above target until 2025 Credit Suisse Switzerland National The bank receives the liquidity line
FRANKFURT, March 16 (Reuters) – Europe Central Bank politicians on Thursday inflation Although it remains very high, it comes amid extraordinary turmoil in financial markets that could force it to shy away from plans for further high interest rate hikes.
The ECB was set for another 50 basis point (bps) hike on Thursday, after launching a campaign that saw inflation rise to a record high since July.
However USAIn last week’s bankruptcy of Silicon Valley Bank all bank raised concerns about stress in the sector and put the shares at the center of a failure in Europe with long-troubled Credit Suisse.
Now the ECB inflation must balance its credibility with the need to maintain financial stability in the face of large-scale imported turmoil.
Complicating his task, he uses the euro currency 20 the country’s central bank has already committed to raising the deposit rate by 50 bps to 3% on Thursday.
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Danish Bank economist Piet Haines Christiansen, “ECB inflation unless he sees his forecast significantly different from a week ago, anything short of 50 basis points will be a big mistake and hurt credibility,” he said.
Eurozone inflation was 8.5% in February, down from last autumn’s peaks but well above the ECB’s 2% target, and the outlook is likely to remain grim.
A source with direct knowledge told Reuters that although headline inflation forecasts were cut due to lower energy prices, the new figures would continue to show price growth to be significantly above target in 2024 and slightly above target in 2025.
Meanwhile, forecasts for core inflation, an indicator of the persistence of price increases, are expected to be raised, indicating that inflation will continue for a long time and that monetary policy will have to remain tight for some time.
This scene is so disturbing that bank Before the turmoil in the banking sector, a long list of politicians advocated continuing interest rate hikes beyond March.
COLD FEET?
Markets remain skeptical of the ECB’s decision, however, and reversed bets on the size of the move and subsequent interest rate hikes on Thursday. Money market pricesinvestors last week 10Below 0% but at some point on Wednesday 2050 bps above % indicates that it now sees only 40-45% chance of growth.
Volatility Credit Suisse’s share price plunge fueled fears of a global banking crisis Switzerland to boost liquidity National 54 from his bank billion It happens when he says that he will borrow up to USD.
Some argue that banking stress is significant enough for the ECB to step away from its leadership and reverse its tightening plans.
Barclays economist Silvia Ardagna said, “Current developments are, in our view, extremely “unusual” which justifies a reassessment of our ECB call. “We are for lack of growth 20%, we assign a 60% probability for a 25 bps increase and a 20% probability for a 50 bps increase.”
The top ECB rate, also known as the terminal rate, is now seen at around 3.25%, up from 4.1% last week, an exceptional turnaround in market prices.
Even if the ECB goes ahead with a 50bps hike, it is almost certain to depart from its recent practice in signaling its next move, leaving the door open to a May meeting even if the bias for higher rates remains.
ECB President Christine Lagarde will almost certainly try to reassure investors about the health of the bloc’s banks, arguing that they are better capitalized, more profitable and more liquid than in previous periods of turmoil.
But the ECB is likely to take special measures to help banks offer will stop doing, especially as it removes the subsidy from the main liquidity pool to deprive creditors of central bank cash.
However, Lagarde could signal that the ECB is ready to step in if the contagion begins to worsen the health of eurozone creditors, thereby preventing the ECB from effectively implementing monetary policy.
BNP Paribas said, “The ECB will remain committed to the principle of decoupling: setting the monetary policy stance to achieve the inflation objective; and using other means to deal with financial stability”. “Indeed, interest rates are probably the wrong tool to solve the liquidity problem.
Report by Balazs Koranyi; Edited by Catherine Evans and Kim Coghill
Our standards: Thomson Reuters Trust Principles.
2023-03-16 13:08:09
Source – reuters
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