Unsurprisingly, the European Central Bank raised interest rates by another 50 basis points (0.5%) for the second consecutive time. A decision that will inevitably result in a rise in variable rate mortgages. Thus, there was no deceleration in the monetary tightening decided to contain inflation. In detail, the Governing Council decided to increase the three reference interest rates by 50 basis points. Thus, the rates on the main refinancing operations, the marginal lending facility and the permanent deposit facility will be increased to 3.50%, 3.75% and 3.00%, respectively, with effect from 22 March.
“The high level of uncertainty heightens the importance of an evidence-based approach to the Governing Council’s decisions on key rates, which will be determined by its assessments of the inflation outlook in light of new economic and financial data, core inflation and the intensity of transmission of monetary policy”, explains in a note the ECB chaired by Christine Lagarde. The Governing Council is closely monitoring the ongoing market tensions and stands ready to intervene whenever necessary to preserve price stability and financial stability in the euro area.
Lagarde’s move caused immediate fibrillation in markets already struggling with turmoil in the banking system. A swing effect with an initial decline and subsequent positive return for the Frankfurt, London and Milan stock exchanges. “The current position of the banking sector in the euro zone is much better than in 2008”, said Christine Lagarde, at the press conference that followed the rate council, adding that the ECB can intervene “in the event of a liquidity crisis”, but I don’t believe this is the situation today. At this moment “there is a level of uncertainty” that dominates the markets “and now it is not possible to determine what the ECB’s path will be in terms of rates. In any case, the choices will be linked to the data”.
Source: IL Tempo
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
