complete script Promise kept No change of course. The European Central Bank (ECB) decided yesterday to raise the price of money by 50 basis points to 3.50%. "Inflation is expected to remain too high for too long", was the phrase chosen to justify the increase in rates.
But the entity chaired by Christine Lagarde also gave a nod to the markets, following the recent banking crisis following the collapse of Silicon Valley Bank (SVB) and Credit Suisse: she added that they will closely monitor "the financial stability", a mission that is compatible, according to the French, with the battle to curb inflation.
"The ECB has decided to maintain the announced half-point increase in interest rates and privilege its credibility in the fight to control inflation, but without committing itself to future decisions", emphasized IESE professor Xavier Vives . "At the same time he recalled that he is ready to offer liquidity to banks, if necessary, as well as to countries if there are tensions in sovereign debt", he added.
Indeed, the entity chaired by Lagarde was faced with a dilemma. Or he fulfilled his promise and his goal of lowering inflation to 2% (since the underlying is at levels that are more than double the desired). Either it breathed air into the markets, touched by the banking crises, it reduced or suspended the increases in the price of money and thus avoided suffocating the economy more than necessary. In the end, in a clever Solomonic move, he gave his word, he remained firm with his mission, but at the same time he said that he will offer all the necessary instruments to guarantee soundness in the bank. Several analysts acknowledged this in their reports.
"Of all the major central banks, the ECB was probably the one with the least flexibility to take a break because it arrived so late to the tightening party and is therefore behind the curve," he said. a note Craig Erlam, from Oanda. "The possible fragilities of the banking system must be addressed with policy instruments other than interest rates. And the ECB has many instruments of this type at hand", recalled Sylvain Broyer, chief economist of S
To justify his rate increase, Lagarde also resorted to a curious motivation... calendar. Because the ECB's analysis focuses – she usually repeats it ad nauseam – on data, and that data was collected in the days (and weeks) before the meeting, the latest banking crises in Silicon Valley and Switzerland they arrived, so to speak, out of time, because they were too recent.
Thus, the SVB and Credit Suisse variables were not reflected in the information available at the time of making the decision. In other words, the ECB meant that, if necessary, they could later leave the door open to a slowdown in rate hikes as long as financial instability had tangible repercussions on the economy. That is why, unlike on other occasions, he did not offer any future guidance for monetary policy.
In any case, the decision of the ECB was not adopted by a large majority, but not unanimously, Lagarde acknowledged. Some countries doubted whether it would not have been better to adopt a pause. Many remember the ghost of the previous president of the institution, Jean Claude Trichet, who decided to raise rates just weeks before the financial crisis of the Great Recession broke out in 2008. Lagarde pointed out that the situations are very different, because each crisis it has its history and now the banks are healthier and there are also many options to supply liquidity, should it be needed.
"The banking sector in the euro area has resilience and solid capital and liquidity positions", according to the ECB. In addition, since that financial crisis and the euro zone sovereign debt crisis, the ECB took over the supervision of the largest banks in the euro zone, which is why they are better supervised.
In this regard, ECB Vice-President Luis de Guindos said that the exposures of banks in the euro zone to Credit Suisse are "quite limited" and are not concentrated" and that exposures to banks in the United States are also "limited". "The European banking industry is resilient", reiterated the Spanish manager.
The central bank took the opportunity yesterday to update its forecast table. Inflation this year will be 5.3%, one point less than projected in December. The underlying, however, will climb to 4.6%, four tenths more. In 2024 it will be 2.9%, and in 2025, 2.1%, also down. Growth, on the other hand, will be 1%, twice as much as in December, to remain at 1.6% for the next two years.