ECB Raises Rates By 50 Bps On High Inflation
The European Central Bank hiked interest rates by 50 basis points on Thursday, in line with its guidance in February, as it expects inflation to remain high for too long. The bank also said policymakers were closely monitoring the financial market turmoil triggered by the banking sector crisis in the US and Switzerland.
The central bank assured that its toolkit is fully equipped to ensure sufficient liquidity support to the euro area financial system when needed.
“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,” the ECB said.
“The euro area banking sector is resilient, with strong capital and liquidity positions.”
Markets were closely watching the decision this month as the ECB was the first major central bank to announce its policy decision following the collapse of the California-based Silicon Valley Bank and some other smaller banks in the US over the weekend as well as the bank stock selloff triggered by the troubles of the embattled Swiss bank Credit Suisse.
Some economists were doubtful whether the ECB would indeed raise interest rates by 50 basis points this month.
Following the latest hike, the main refinancing rate, or refi, is at 3.50 percent, the deposit facility rate is at 3.00 percent and the lending rate is now 3.75 percent.
The previous change in the interest rates was a half-a-point hike in February.
The Governing Council, led by ECB President Christine Lagarde, had slowed the pace of interest rate hikes to 50 basis points from 75 basis points in December.
The ECB also raised the growth and core inflation projections for the euro area for this year. The ECB staff now sees average growth of 1.0 percent and core inflation at 4.6 percent this year.
Core inflation in the euro area hit a record high of 5.6 percent in February.
“Inflation is projected to remain too high for too long,” the ECB said.
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