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(Reuters) - The European Central Bank pushed through another big increase in interest rates on Thursday, sticking to its inflation fight despite turmoil in financial markets that has raised fears about a global banking crisis.
The ECB raised its three policy rates by 50 basis points in its sixth consecutive rate hike and said future moves will depend on incoming data.
“The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability,” the ECB said.
Thursday’s decision increases the rate the ECB pays on bank deposits, which is the benchmark for borrowing costs in the euro zone, to 3.0% from 2.5%.
STOCKS: European stocks dipped and were last trading 0.1% lower, having been flat just before the decision. Banking shares were last down 0.2%.
BONDS: Germany’s 2-year bond yield, sensitive to interest-rate expectations, was last up 2 basis points on the day to 2.41%, down from 2.46% before the statement. Ten-year bond yields across remained higher on the day.
FOREX: The euro was up marginally at $1.05810 versus $1.0599 just before the ECB spoke.
“50 bps as promised. This sends a strong message on inflation but the statement is peppered with reference to market tensions.”
“This means the ECB will be data dependent. It also stands ready to provide liquidity. Overall, this is in line with expectations.”
“The ECB was basically caught between a rock and a hard place. It had already signalled to the market at its last meeting that a 50 bps hike could be expected, so to back-track now probably risked sending a message that worries over financial stability and contagion from the U.S. bank failures is seen as a serious enough concern that it is trumping the need to continue tightening policy as it battles inflation.”
“Sending such a message could have actually been negative for the euro-zone finance sector as it would simply have frayed market nerves further.”
“The fact that the ECB has reiterated that it remains ready to preserve both price stability and financial stability is, for me, an acknowledgement to the markets that it is aware of the current turmoil, and that it is prepared to take action if necessary.”
EREN OSMAN, MANAGING DIRECTOR, WEALTH MANAGEMENT, ARBUTHNOT LATHAM, LONDON:
“Whilst we had anticipated a 25 bps with hawkish guidance, the ECB’s decision to move rates higher by 50 bps demonstrates that getting inflation under control remains their primary focus.”
“The recent market concerns surrounding the U.S. regional banks and more recently Credit Suisse do not pose a systemic risk to the global banking sector and central bankers will continue with their rate hiking policy.”
Reporting by the Markets Team, Compiled by Dhara Ranasinghe; editing by Yoruk Bahceli
