The European Central Bank (ECB) has convened to raise its three main interest rates by 50 bps (0.5%) in response to a sustained rise in inflation announced by the European Union. The agency’s president, Christine Lagarde, said the European banking sector is resilient and the agency is prepared to provide liquidity if needed.
European Central Bank raises interest rates to fight inflation
The European Central Bank (ECB) has decided to continue raising interest rates in its fight against inflation: on March 16, the institution raised its three key interest rates by 50 basis points (bps), with the main refinancing rate and rates on its marginal lending facility and deposit facility at 3.50%, 3.75% and 3.00% respectively. and announced that they would be implemented from 22nd
ECB President Christine Lagarde cited inflation as the main reason for the hike, saying“inflation is expected to remain too high for too long.”While inflation figures have fallen from 9.2% in December to 8.5% in February, the agency’s goal is to return to a stable 2%; the ECB expects to approach that goal in 2025, by which time inflation will have fallen to 2.2%.
The recent decline is mainly due to the downward trend in energy prices, while food and beverage prices have soared by 15% over the same period.
The banking system is said to be “resilient”
The agency did not directly address the recent developments that brought Credit Suisse, one of Switzerland’s largest banks, to the brink of collapse and ultimately to a $54 billion bailout from the Swiss National Bank.
But the ECB declared.
The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system when needed and to maintain the smooth transmission of monetary policy.
Credit Suisse’s failure follows the recent closure and intervention of three U.S. banks, Signature Bank, Silicon Valley Bank, and Silvergate Bank, and investors around the world are concerned that this could trigger a banking crisis at the international level
However, the ECB made it clear that it remains committed to the solution of lower inflation, explaining that it is “prepared to adjust all measures within our mandate to ensure that inflation returns to its medium-term target.”
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