ECB puts inflation first as it raises rates by 0.5%

The ECB raised its key rate by 0.5% to 3%, even as markets suddenly shifted expectations over the past 48 hours as a result of the worsening outlook for financial markets.

The bank, which is chaired by Christine Lagarde, said it made the decision because “inflation It is projected to remain very high for a long time. Therefore, the Governing Council today decided to raise three key ECB interest rates rates by 50 basis points, in line with its determination to ensure a timely return of inflation to the 2% medium-term target.

It came after the Swiss National Bank was forced to provide an emergency £45 billion credit facility to Credit Suisse, its second largest lender.

Shares of Credit Suisse plunged earlier this week on fears that it suffered a collapse that could spark a global financial crisis and hurt economic growth. The decline was initiated by its largest shareholder, the Saudi National Bank, which rejected further investment. However, the shares gained ground today after the intervention of the Swiss National Bank.

The ECB said its Governing Council is “closely monitoring the current market tensions and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.”

Other major central banks, including the Bank of England and the US Federal Reserve, are likely to end the current cycle of large interest hikes in a bid to curb rapidly rising inflation.

The ECB left the benchmark rate at or below zero for a decade from 2012 until last September when it ordered a 0.75% increase. Since then there have been three more increases – one of 0.7% and two of 0.5%.

Richard Carter, head of fixed interest research at Quilter Cheviot, said: “The European Central Bank has taken a look at what’s going on in the banking sector right now and effectively said they’re going to stop what’s happening by raising rates by half.” are comfortable. One percentage point. Credit Suisse appears to be teetering on the edge, and its collapse could have ramifications for the European banking sector, but the ECB sees inflation as a bigger risk to tackle. And it’s probably a good The signal may be as it is hoped that the likes of Credit Suisse and Silicon Valley Bank are separate events that have their own circumstances.

“However, if things turn sour from here, Christine Lagarde will be under pressure to act swiftly with inflation. The ECB remains behind the curve on rate hikes compared to its US and UK counterparts.

“If inflation fails to come down sharply this year, the Bank could find itself with two competing forces – a struggling financial system that will impact economic growth versus stable inflation that shows no signs of returning to target.” . This is a tense period and will require central banks to be nimble and swift in their decision-making. For now, however, they seem to have decided to stay on the inflation-fighting mode.”