Last Friday, the US bank Silicon Valley Bank (SVB) (the 16th largest in the US) went bankrupt and fears of a financial crisis returned to the agenda.
Yesterday the real fear in Europe died down with the stock market collapse of one of the European giants, Credit Suisse. And many unanswered questions about how stable and solid this bank is, the European market and whether or not there are dangerous and possible connections and contagions with other banking institutions.
Today, as promised, the European Central Bank (ECB) would raise interest rates from 3% to 3.5% (central refinancing rate) and the deposit facility rate from 2.5% to 3%. But the pressure not to do so is enormous.
Many experts recommend a halving: 0.25 percentage point instead of the promised 0.5 point. Or else the ECB will start opening specific and dedicated lines of funding, just for the banks to get their bearings in this difficult time and for the markets to calm down a bit.
But, in short, financial market analysts believe that continuing to hike interest rates as if nothing new and just happening in the banking sector is a mistake.
The general tone is that, regardless of what happens today (Thursday 16 March), the ECB needs to reconsider from now on the speed and consistency of planned increases and approach monetary tightening with more modesty in order to avoid a new banking crisis and the euro economy not push into another recession.
A month ago, Lagarde admitted “extreme scenarios”
Officially there is even room for that. ECB President Christine Lagarde said in February that the plan was to raise key eurozone interest rates by 0.5 points today, but then she made an important nuance that went almost unnoticed.
Speaking at the press conference, Lagarde said the rate hike forecast was “intentional” and that the ECB will always decide with the best and most recent information available.
And he clarified it this way: “An intention is not, as I said, a 100% commitment, but it’s a very strong determination, and I can’t think of any scenarios, unless they’re pretty extreme, where this wouldn’t happen. “.
As mentioned, for several monetary policy observers, the serious problem with Credit Suisse and all the unknowns and conjectures it raises (see text on next page) is more than enough reason for Lagarde to slow down from now on.
It doesn’t mean it will stop raising rates in the future, but today it should send a signal of support against speculative narratives and lack of confidence in the banking system, which continue to increase.
The ECB has to, because Credit Suisse is huge and too big, with major consequences for almost every other major bank in the eurozone, but the Swiss National Bank also needs to act.
Yesterday, at the beginning of Wednesday evening, it announced that it would provide a helpline in the form of liquidity.
Constâncio awakens the spirit of recession
Vítor Constâncio, former vice president of the ECB under Mario Draghi’s leadership, argues that the current president of the Frankfurt-based institution has scope and arguments not to raise interest rates that much.
“Central banks should not ignore the signals from the markets and the looming recession. They should relax their plan to raise interest rates,” said the economist. on your twitter account.
The ECB should implement an increase of up to 25 basis points [0,25 pontos percentuais] and not the announced 50 basis points,” said the former governor of Banco de Portugal.
Furthermore, the Federal Reserve (Fed) of the United States should do the same. “It should also be up just 25 basis points next week,” Constâncio added.
The now Professor of Economics at the University of Navarra and ISEG believes that “Credit Suisse has entered a free fall [em bolsa] and extended this contagion to the value of the shares of European banks”. Therefore, the ECB has a serious problem. It must contain the distrust and sharp devaluation that has already set in in several institutions it oversees.
According to the former central banker, “markets responded with a big drop in two-year bond yields in a matter of days,” meaning these market agents are “betting that central banks will take a break.”
Roubini: If the ECB raises rates as he said, Credit Suisse could go bankrupt over the weekend
Nouriel Roubini, nicknamed “Dr. [Dr. Doom]Due to his very pessimistic nature regarding the financial system, he is more optimistic in his comments on the situation put forward by the Swiss financial giant.
“If the ECB rises 50 basis points, it is possible that Credit Suisse will go bankrupt over the weekend” and therefore “the ECB will have to reverse that decision next week,” he said in his account on Twitter.
“So let’s hope it doesn’t repeat the mistake made in 2011 during the Eurozone crisis, when it raised interest rates and contributed to the escalation of the crisis.”
According to Roubini, “the ECB and the Swiss National Bank should provide Credit Suisse with an emergency liquidity line”.
Frederik Ducrozet, chief economist at asset manager Pictet, also believes that “the ECB has the necessary tools to intervene preventively”.
“Clarification on how banks can use TLTROs would be welcome [linhas de financiamento de longo prazo só dedicadas aos bancos e direcionadas]”.
It would be a “protection” and “you can do it tomorrow [hoje] or else make a statement at any time,” which calms things down a bit more, defends the economist.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
