Base rate raised – ECB reassured: “Banking sector is resilient”

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The European Central Bank (ECB) remains on track: despite inflation and considerable unrest in the banking sector, the central bank raised its interest rates by 0.5 percentage point on Thursday as planned – to the current level of 3.5 percent. The currency guards around central bank chief Christine Lagarde stand ready to respond if necessary to maintain price and financial stability in the euro area. The euro area banking sector is resilient: capital and liquidity positions are solid, according to the central bank of the euro area. Incidentally, the euro remained stable against the dollar after the ECB’s decision.

“We remain committed to fighting inflation,” Lagarde said. The European Central Bank (ECB) is determined to bring inflation back to the target of two percent over the medium term. “There can be no doubt about that.”

The ECB has all the tools to support the financial system with liquidity if necessary. “I think the banking industry is in a much, much stronger position right now than it was in 2008,” Lagarde said.

However, Lagarde left the course open in the fight against the continued strong price increase: “The high level of uncertainty underlines the importance of a data-dependent approach to our interest rate decisions,” said the head of the central bank. The recent tensions in the financial markets have increased the uncertainties. “That’s why we’re strengthening the principle of data dependency.”

“The ECB made the right decision”
From the point of view of the chief economist of the Association of German People’s Banks and Raiffeisenbanks (BVR), Andreas Bley, a pause in rate hikes would have increased the turmoil in the financial markets. “The ECB made the right decision today to stick with its previously announced rate hike despite the turmoil in international financial markets.” The Association of German Banks (BdB) spoke out in favor of further rate hikes. “The ECB must continue its course so that inflation can be reduced sustainably in the medium term,” said deputy general manager Henriette Peucker.

Unrest in the US, billions in credit for Crédit Suisse
The fear of a new banking crisis caused severe turbulence on the stock markets in recent days. First, the collapse of the Silicon Valley Bank (SVB) in the US has dragged the banking sector on the stock exchanges in the United States and Europe with it. Subsequently, the crisis of confidence at Credit Suisse (CS), Switzerland’s second largest bank, rekindled the unrest in the financial markets. Crédit Suisse is now reaching for the lifeline of the Swiss National Bank (SNB) and is taking out loans of up to CHF 50 billion (approximately EUR 51 billion) from the central bank.

Euro stable against dollar after ECB decision
Meanwhile, the euro stabilized on Thursday after falling midweek. The common currency was priced at $1.0588 in the afternoon, about the same as the night before. The eagerly awaited ECB interest rate decision caused some fluctuation in the euro exchange rate, but overall not much happened. The ECB set the reference rate at USD 1.0595 (Wednesday: USD 1.0549). The dollar thus cost 0.9438 (0.9480) euros.

Source: Krone

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