The European Central Bank (ECB) is expected to raise interest rates further in the eurozone on Thursday, despite the turmoil in the banking sector in recent days. ECB President Christine Lagarde stressed last week that she will do “whatever it takes” to curb high inflation and ensure more stable prices.
Curb inflation
By making loans more expensive, the ECB is trying to curb demand in the economy and this should curb inflation. The politicians in Frankfurt have already indicated in their previous interest rate decision that interest rates should therefore probably be raised again by half a percentage point. And the ECB should not be ready yet. De Nederlandsche Bank (DNB) chairman Klaas Knot has previously said that, as far as he is concerned, interest rates are expected to be raised again in May.
Since the Russian invasion of Ukraine, life in the euro area has rapidly become more expensive. Energy prices, in particular, soared last year. Recently, it is mainly the groceries in the supermarket that customers have to pay more and more. The question is, however, to what extent the ECB will allow its interest rate decision to be guided by recent worries about the banking sector. In the US, Silicon Valley Bank (SVB) and Signature Bank went bankrupt last week and there was a lot of panic in European stock markets for Credit Suisse on Wednesday.
Resilient
Leading Italian economist Lorenzo Bini Smaghi was quick to say in response to Wednesday’s developments that the ECB would do better to wait with a new interest rate hike or should raise interest rates less sharply. However, most analysts appear confident that the central bank will not deviate from its previously announced course. At the press conference following the interest rate decision, ECB President Lagarde will likely be asked whether euro area banks are all able to absorb the sharp rise in interest rates.
According to the Dutch finance ministry, Dutch banks have sufficient financial reserves and are therefore “resilient to absorbing market shocks”. A few days ago DNB also defined our country’s banks as resilient. European Commissioner Mairead McGuinness (Financial Services and Stability) also underlined that the direct consequences of the collapse of US banks for the EU appear to be ‘limited’. “These banks weren’t subject to the same stringent liquidity requirements” as all European banks, McGuinness says.
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.
