The European Central Bank (ECB) meets this Thursday to decide on the rise in interest rates, at a time when alerts are sounding about the uncertainty of monetary tightening due to banking turmoil.
The institution chaired by Christine Lagarde recently indicated that an increase in interest rates by another 50 basis points is likely, but the bankruptcy of Silicon Valley Bank (SVB), in the United States, and its repercussions in other banking institutions created an additional challenge. . for the ECB on raising interest rates to curb inflation.
The institution could “increase less” the rates, after the rise that is expected for today, considered Robert Halver, an analyst at Baader Bank, quoted on Tuesday by AFP.
It is about “alleviating the pressure” when “over-indebtedness is very significant in the economy” and high rates can further weaken banks, explained the same analyst.
On Monday, given the nervousness in the markets with the turbulence in the financial system, after the fall of the SVB and the difficulties in various other North American banking entities, the European leaders tried to calm things down by stating that there was no risk of contagion and that “the Banking system is solid”, repeating a statement made earlier in the morning by US President Joe Biden in a statement at the White House.
When this financial turbulence coming from the United States was far from over, ECB President Christine Lagarde announced, still in February, that an additional 50 basis point increase in interest rates would almost certainly be at the March meeting.
Lagarde repeated this intention in several public interventions, at a time when inflation in the euro area continues to evolve at levels that far exceed the 2% medium-term objective set by the ECB.
Following the price hike that followed Russia’s offensive in Ukraine, the ECB launched an unprecedented cycle of interest rate hikes last July, ending a decade of cheap money.
But the consensus reached so far in the Governing Council on tightening monetary policy should give way to “a very lively discussion” at Thursday’s meeting on what’s next, according to Carsten Brzeski, an economist at ING.
The defenders of a looser policy on the part of the monetary institution can advocate a more cautious approach from now on, against the continuation of more aggressive increases in the cost of money that have been defended by the so-called ‘hawks’.
Lagarde has said she will do “whatever it takes” to restore price stability.
The inflation rate in the euro area fell in February for the fourth consecutive month and stood at 8.5%, when it had stood at 8.6% in January, according to Eurostat, but core inflation, which excludes energy and food and is considered more representative of long-term trends, reached an all-time high of 5.6% in February.
This Thursday, the ECB publishes new growth and inflation forecasts that help to reassess the situation and define the future direction.
Source: TSF
