ECB Raised the Interest Rates to 3.5% - Highest since 2008
The European Central Bank today raised the key interest rate by 50 basis points to 3.5%, the highest level since 2008, and did not comment on what its future steps might be to control inflation.
The decision comes amid extraordinary turmoil in financial markets, which has prompted analysts to suggest that the Frankfurt headquarters will be forced to abandon plans for another major rate hike. The main reason is that fears of a new financial crisis are displacing fears of inflation, commented "Reuters".
After raising interest rates since July at their fastest pace on record to curb inflation, the ECB effectively promised another 50 basis point (bps) hike on Thursday and signaled further moves in the coming months.
But last week's collapse of Silicon Valley Bank in the United States raised concerns about strains in the banking sector and sent shares tumbling, with long-troubled Credit Suisse at the center of the meltdown in Europe.
While stocks rose on Thursday after the Swiss National Bank threw Credit Suisse a $54 billion loan lifeline, volatility kept markets under pressure. This is also a concern for the ECB, as monetary policy works through the financial system.
Supporting the case for a bigger rate hike, the ECB's new economic forecasts will show inflation well above its 2 percent target in 2024 and slightly higher in 2025, a source with direct knowledge told Reuters.
Estimates of core inflation, an indicator of the durability of price growth, will meanwhile be raised, suggesting that the decline in inflation will be prolonged and monetary policy will need to remain tight for some time.
Markets doubted the ECB's resolve and the money market indicated that investors saw a roughly 50% chance of a 50 basis point hike.
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