Frankfurt [Germany], March 17 (ANI): The European Central Bank raised interest rates by a half-percentage point (0.5 or 50 basis points), The Wall Street Journal reported.
The central bank also promised emergency support for eurozone banks if needed, showing the policymakers’ balancing act as they seek to combat high inflation without aggravating strains in the financial system
The ECB said in a statement that it would increase its key rate to 3 per cent, following consecutive half-point rate increases in February and December. The 50 basis points (bps) rise surprised analysts who had expected a smaller uptick given the tense market situation after the collapse of Silicon Valley Bank, WSJ said.
At a news conference on Thursday, ECB President Christine Lagarde signalled the bank would be cautious about further rate increases, while stressing it stood ready to provide fresh liquidity to banks. Policymakers will make future rate decisions based on coming economic data, she said, a change from previously announcing plans for rate increases months in advance.
“It’s not business as usual,” Lagarde said. “It is not possible at this point in time…to determine what the path will be going forward.”
European stock markets rallied while government bonds gyrated following the announcements, according to WSJ. Analysts said the moves suggested interest rates would be lower than expected, with markets now pricing a peak ECB rate just above 3 per cent, down from about 4 per cent one week ago.
WSJ said the yield on the 10-year German bund declined to 2.132 per cent from 2.193 per cent before the release and then rose to 2.260 per cent.
WSJ said the ECB’s decision provides an early glimpse into how major central banks, including the Federal Reserve, might respond to recent signs of market distress that started with the collapse of SVB and a second large US bank last week.
Both the Fed and the Bank of England are set to hold their policy meetings next week.
The ECB decision to push ahead with its pre-announced rate rise suggests that the central bank, at least, still sees pushing down high and sticky inflation in the eurozone as its priority, WSJ said. (ANI)
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