ECB sets policy rate at three percent

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ECB sets policy rate at three percent

Despite tensions in the financial markets, the European Central Bank has, as expected, further raised its policy rate by fifty basis points. With this, the ECB hopes to continue fighting inflation. ‘The question was whether the ECB would soften that battle a bit. The answer to that is no, they won’t.’

With the new increase, the European policy rate now stands at three percent. ‘This was to be expected’, says BNR’s house economist Han de Jong. ECB boss Christine Lagarde said in her press conference that the fight against inflation will only be weakened if financial stability is threatened. And that wouldn’t be the case now. ‘The European banks are in a much better position than during the credit crisis in 2008 and there are also instruments to guarantee financial stability’, emphasizes De Jong.

ECB President Lagarde (right) and Vice President De Guindos at a press conference. (ANP/dpa Picture-Alliance)

Falling prices as a result of financial problems with Credit Suisse also had no effect on the decision. ‘Credit Suisse’s problem is not rising interest rates, but structural mismanagement, disappointed customers who walk away and the largest shareholder who makes an unfortunate statement,’ says De Jong.

Problem

That does not alter the fact that the enormous rise in interest rates in recent months is a problem for the entire economy, thinks De Jong. “In the United States, we’ve seen it have a catastrophic impact on Silicon Valley Bank. That’s why Lagarde said the ECB is closely monitoring the situation. “Of course it would be terrible if the central bank did anything other than keep a close eye on things.”

According to De Jong, Credit Suisse is robust enough to survive this crisis, partly due to an intervention by the Swiss central bank. ‘It is a significant bank, somewhere between Rabobank and ING in size. I think they do this well in itself.’

The ECB also said today that few financial institutions will be affected by the crisis at Credit Suisse. ‘The message here is actually: don’t worry, we’ve got this.’


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