The collapse of US bank Silicon Valley Bank (SVB) reduces the likelihood of a European Central Bank (ECB) commitment to a major rate hike this week, economists say.
ECB policy makers will meet on Thursday and then decide how much to raise interest rates. In the last two meetings, interest rates increased by 0.5 percentage points. Initially, economists expected that interest rates would also be raised again in such a large step, but now it may be less steep.
No more bullshit
Economists also think the US central bank won’t raise interest rates by 50 basis points next week. Some market experts even speculate that the US central bank, the Federal Reserve (Fed), will refrain from raising interest rates altogether. Smaller interest rate steps by the Fed are now more likely, Van Lanschot Kempen said on Monday.
Last week, SVB ran into financial troubles after a failed share issue and finally a bank run. The US government then intervened to prevent the worst. The Federal Reserve and the government took appropriate action this past weekend to prevent further contagion to the financial system. Sufficiently thorough, it seems at the moment’, writes Van Lanschot Kempen in a report. “The measures taken to prevent the burning fire of some American banks from turning into a fire are decisive.”
Banking crisis
Some compare the SVB issue to the banking crisis of 2007/2008. This comparison seems over the top at this point. For example, because then the basic problems came from the real estate market. And the real estate market has a lot of specific weight in the global economic and financial system,’ says Van Lanschot Kempen.
According to economists, SVB’s problems are rather the result of mismanagement of the balance sheet of a specific bank. “In general, banks’ capital buffers have also become significantly higher,” notes Van Lanschot Kempen. Incidentally, the turmoil on the stock markets caused the price of gold to rise further on Monday. Since Wednesday, gold, considered a safe haven in uncertain times, has become about 4% more expensive. Even silver has become more expensive.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
