Hong Kong News

Nonpartisan, Noncommercial, unconstrained.
Tuesday, Apr 23, 2024

European Central Bank sticks to its guns on interest rates despite market turmoil

European Central Bank sticks to its guns on interest rates despite market turmoil

Banking shares come under further pressure after the ECB says it must prioritise the battle against inflation over financial market jitters for what rate rises are doing to banks.
The European Central Bank (ECB) has maintained its fight against inflation and imposed a large set of interest rate hikes despite financial market turmoil.

Bank balance sheets have suffered because of the effect of interest rate increases, which have contributed to recent crises at Silicon Valley Bank and Credit Suisse.

But the central bank - responsible for monetary policy in the 20 nations which use the euro as their currency - stuck to its original plan to tackle inflation through rate rises.

Last week. it had been widely expected to impose the 0.5 percentage point hikes across its three main interest rates to maintain its battle against inflation.

Market speculation grew on Wednesday, though, that it would shy away from such rises given the market mayhem that had taken hold in the wake of Silicon Valley Bank's collapse - hitting the stocks of all major European banks hard.

It culminated in a rout for shares in major Swiss lender Credit Suisse, which later took a financial lifeline to shore up confidence.

The ECB said it took its decision because "inflation is projected to remain too high for too long", describing its banking system as "resilient" despite reportedly warning EU politicians that some euro area banks could be vulnerable.

'Elevated level of uncertainty'

Banking shares on the continent took another hit in response to the rate rises though the jitters later subsided as the market focused on the central bank's assurances that it was aware of the sensitivities surrounding its rate hikes.

"The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council's policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission", the statement from the ECB said.

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

It highlighted the current "severe" market tensions as a potential risk to the eurozone economy as the pressure on banks could dampen the provision of credit.

At a news conference, ECB president Christine Lagarde added: "The [economic] projections that we have do not incorporate any of the most recent developments and certainly not the impact of the most recent financial tensions that we have observed on the markets.

"So there is a level of uncertainty that has been completely elevated because of that [and] that is the reason why
we reinforce the principle of data-dependency [in our future policy decisions]."

'We see this as a wise move'

Shares in Credit Suisse ended the day 20% higher on the back of its bailout while investors put the ECB's rate hikes behind them to allow a meagre recovery in wider bank shares.

The meltdown for banking and many other financial services stocks reflects deep concerns for the health of their balance sheets due to rising interest rates.

The aggressive pace of rate hikes across Western economies has raised the cost of servicing their debts and placed a greater strain, to varying degrees, on their balance sheets.

Regulators, including those in the UK, have insisted that there is no systemic risk and that banks are far better capitalised than they were before the financial crisis.

Matthew Ryan, head of market strategy at financial services firm Ebury, said: "The ECB stuck to its guns today in delivering a 50bp rate hike, despite the acute uncertainty in markets triggered by the collapse of Silicon Valley Bank and the slump in European banking shares.

"We see this as a wise move, as not only does sky-high core inflation and a resilient euro area economy warrant additional policy tightening, but the larger hike sends a clear signal of confidence in the strength of the European banking sector.

"In our view, a 25bp rate increase may have also raised question marks about the ECB's credibility, given the thorough hawkishness of the bank's recent forward guidance."
Newsletter

Related Articles

Hong Kong News
0:00
0:00
Close
It's always the people with the dirty hands pointing their fingers
Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Steve Jobs' Son Launches Venture Capital Firm With $200 Million For Cancer Treatments
Google reshuffles Assistant unit, lays off some staffers, to 'supercharge' products with A.I.
End of Viagra? FDA approved a gel against erectile dysfunction
UK sanctions Russians judges over dual British national Kara-Murza's trial
US restricts visa-free travel for Hungarian passport holders because of security concerns
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Political leader from South Africa, Julius Malema, led violent racist chants at a massive rally on Saturday
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
'I am not your servant': IndiGo crew member, passenger get into row over airline meal
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Spanish Citizenship Granted to Iranian chess player who removed hijab
US Senate Republican Mitch McConnell freezes up, leaves press conference
Speaker McCarthy says the United States House of Representatives is getting ready to impeach Joe Biden.
San Francisco car crash
This camera man is a genius
3D ad in front of Burj Khalifa
Next level gaming
BMW driver…
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
40,000 child slaves in Congo are forced to work in cobalt mines so we can drive electric cars.
×