European Central Bank (ECB) policymakers meet on Thursday amid financial market turmoil that could force them to deviate from plans for another sharp interest rate hike amid fears of a new financial crisis, even with high inflation .
After raising rates since July at its fastest pace on record to curb inflation, the ECB committed to another 50 percentage point hike on Thursday and signaled further moves in the coming months.
But last week’s collapse of US Silicon Valley Bank raised stress concerns across the banking sector and sent stocks tumbling, with long-running Credit Suisse at the center of European losses.
Although shares rose on Thursday after the Swiss central bank secured a $54 billion bailout from Credit Suisse, volatility kept markets under stress, a concern for the ECB as monetary policy operates through the financial system. .
This requires the ECB, the central bank of the 20 countries that use the euro, to balance its mandate to fight inflation with the need to maintain financial stability in the face of turmoil.
“The support provided by the Swiss National Bank to Credit Suisse removes systemic risk to a point where the ECB could still raise interest rates today by 50 basis points,” said Lorne Baring, chief executive officer of B Capital SA.
In support of a higher rate hike, the ECB’s new economic forecasts will show inflation still well above its 2% target in 2024 and slightly higher in 2025, a source with direct knowledge of the bank told Reuters. question.
Meanwhile, projections for core inflation, an indicator of the duration of price rises, should be high, an indication that disinflation will be protracted and monetary policy will need to remain tight for some time.
Source: Terra
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