Despite the tensions on the financial markets, the European Central Bank, as expected, further raised the policy rate by fifty basis points. With this, the ECB hopes to continue fighting inflation. ‘The question was whether the ECB would soften that fight a bit. The answer is no, they won’t.’
With the new increase, the official European rate is now at three per cent. “That was to be expected,” says BNR in-house economist Han de Jong. ECB chief Christine Lagarde said in her press conference that the fight against inflation will only be weakened if financial stability is threatened. And that wouldn’t be the case now. “European banks are in a much better position compared to the 2008 credit crisis and there are also the tools to guarantee financial stability,” De Jong underlines.
The price drop due to financial problems with Credit Suisse also had no effect on the decision. “Credit Suisse’s problem isn’t rising interest rates, it’s structural mismanagement, disappointed customers walking away and the largest shareholder making an unhappy statement,” says De Jong.
Problem
Nonetheless, the huge increase in interest rates in recent months is a problem for the whole economy, thinks De Jong. “In the US, we’ve seen it have a catastrophic impact on Silicon Valley Bank. That’s why Lagarde said the ECB is closely monitoring the situation. “Obviously it would be awful if the central bank did anything other than keep an eye on things.”
According to De Jong, Credit Suisse is robust enough to survive this crisis, thanks in part to an intervention by the Swiss central bank. «It is an important bank, between Rabobank and ING in size. I think they do it well per se.’
The ECB also said today that few financial institutions will be affected by the Credit Suisse crisis. The message here is basically: don’t worry, we have this.’
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.
