ECB puts inflation first as it raises rates by 0.5% [News]

Link: https://www.standard.co.uk/business/ecb-inflation-raises-rates-0-5-b1067816.html

The European Central Bank (ECB) maintained the pace of interest rate hikes despite fears about the strength of the global banking systems after massive sell-offs this week.

The ECB increased its key rate by 0.5% to 3% even though markets had sudeenly shifted exectations in the last 48 hours as a result of the worsening outlook for the financial markets

The bank, which has Christine Lagarde as its President, said it had made the decision because “inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target.”

It came after the Swiss National Bank was forced to step in to provide an emergency £45 billion loan facility to its second biggest lender Credit Suisse.

Shares in Credit Suisse plummeted earlier this week on fears that it faced a collapse that could have sparked a global financial crisis and hit economic growth. The falls were triggered by its largest shareholder, Saudi National Bank, ruling out further investment. However, the shares rallied today after the Swiss National Bank’s intervention.

The ECB said its Governing Council “is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.”

Other major central banks, including the Bank of England and the US Federal Reserve are thought likely to bring to an end the current cycle of big interest rises to curb galloping inflation.

The ECB left it benchmark rate at zero or below for a decade from 2012 until September last year when it ordered a 0.75% rise. There have been three more hikes – one of of 0.7% and two of 0.5% – since then.