ECB decides to raise key interest rates again
Despite the turbulence on the financial markets, the European Central Bank raised the key interest rate by half a percentage point to 3.5 percent yesterday. The monetary watchdog is aiming to curb inflation, which remains high. Commentators discuss whether the move will have a calming effect as an expression of confidence in the resilience of the banking sector or is too risky right now.
Proof of confidence in the banks
El Periódico de Catalunya praises the decision:
“The suspense regarding the ECB's decision revolved around the question of whether it would fight inflation or protect the financial system. Due to the hike in interest rates, the economy is cooling down and prices are stabilising. At the same time, however, the rise in interest rates is one of the reasons behind the collapse of the SVB. ... When the ECB makes money more expensive it is prioritising the fight against inflation. ... The fact that the ECB is not taking action to reassure the banking sector can paradoxically be interpreted as a sign of confidence in this sector: it doesn't need special measures because it is stable enough.”
Deep rifts
Not everyone was in favour of the hike, Corriere della Sera puts in:
“There are deep rifts behind the move. Many central bankers from Central and Northern Europe would like to continue the monetary tightening, albeit step-by-step, to bring forward the return to two percent inflation. Others, especially from Southern Europe, point out that the ECB's own forecasts already indicate a decline in inflation in two years' time. So the former are banking on stronger steps to slow down the economy in order to remove the risk of losing control of prices. ... The latter, meanwhile, want the central bank to pause the price hikes in order to see and understand what is going on.”
Keeping its options open
The ECB has bought time, says Portfolio:
“The ECB has carried off an extraordinary masterpiece of communication: it has maintained the pace of its interest rate hikes and the promised monetary stringency but at the same time opened the door to the possibility of halting the hikes in response to bank insolvencies, while barely mentioning the threats to the banking system. With this course of action it has conveyed the impression that there is no need to worry about the stability of the banking system . ... The ECB has bought time. ... Meanwhile, the next meeting is due to take place in May. Should the problem have gotten worse by then, the ECB can stop raising interest rates without damaging its own credibility.”