ECB to Deliver 50bp Rate Hike Despite US Banking Sector Turmoil
The European Central Bank (ECB) is expected to deliver another 50 basis points (bps) rate hike at its upcoming meeting on Thursday, despite the recent turmoil in the US banking sector. This is according to eurosystem sources cited by MNI on Monday.
The ECB is expected to hike its key rate by 0.5 percentage points this Thursday, despite sliding market rate expectations amid financial stability concerns brought on by the collapse of Silicon Valley Bank (SVB). Even after the prompt response of the Federal Reserve and US Treasury to announce contingency plans, market participants remain concerned and have scaled back their bets with regards to every major central bank.
Citing eurosystem sources, MNI reported that the ECB maintains its plan to go ahead with the 50 bps rate hike despite the SVB turmoil, and that the degree of data dependency, forward guidance, along with views on inflation and growth should drive the market reaction within the dovish/hawkish spectrum.
It was predicted by economists that the ECB will declare a 0.5 percentage point increase this Thursday. Several European Central Bank (ECB) governors had advocated for four interest rate increases in the course of “In its new staff forecasts, we expect the ECB to possibly raise its growth projections slightly for this year (weaker energy prices) and reduce it for 2024-25 (due to the policy tightening), while raising its core inflation forecast for this year and lowering its headline inflation forecast for this year and next (on the back of weaker energy prices),” said Anatoli Annenkov, an ECB watcher with Societe Generale, in a note.
Based on this, I believe the ECB will increase their rate to 4% or higher. The European Central Bank signaled a 50bp hike at the March meeting and an update to its staff economic forecast suggest the debate about further policy steps will become more heated. That debate is further complicated by fears of US regional banks facing deposit outflows.
It is anticipated by investors that the European Central Bank (ECB) will implement a 50bp rate increase at their gathering this week, as suggested by the Governing Council’s recent advice. Inflation in the Eurozone remains stubbornly high, especially with the core inflation hitting a fresh record high in February. According to Eurostat, the Eurozone Harmonised Index of Consumer Prices (HICP) decreased slightly, from 8.6% in January to 8.5% in February, as the latest data revealed.
0. “ECB Meeting: Is a 50bps Hike Still a Done Deal?” Action Forex, 14 Mar. 2023, https://www.actionforex.com/contributors/fundamental-analysis/490924-ecb-meeting-is-a-50bps-hike-still-a-done-deal
1. “ECB Cheat Sheet: Predictably unpredictable” ING Think, 13 Mar. 2023, https://think.ing.com/articles/ecb-cheat-sheet-predictably-unpredictable
2. “Collapse of US banks could lead to a rethink on ECB’s interest rate hikes” Independent.ie, 14 Mar. 2023, https://www.independent.ie/business/personal-finance/property-mortgages/collapse-of-us-banks-could-lead-to-a-rethink-on-ecbs-interest-rate-hikes-42384640.html
3. “Silicon Valley Bank collapse throws up uncertainty for a European Central Bank hoping to hike rates” CNBC, 15 Mar. 2023, https://www.cnbc.com/2023/03/15/european-central-bank-hike-silicon-valley-bank-collapse-adds-uncertainty.html
4. “ECB Preview: 50bp Hike and a Peak Over 4% – Macro Hive” Macrohive, 14 Mar. 2023, https://macrohive.com/hive-exclusives/ecb-preview-50bp-hike-and-a-peak-over-4/
5. “ECB Preview: Set for 50 bps rate hike, Lagarde holds the key” FXStreet, 15 Mar. 2023, https://www.fxstreet.com/analysis/ecb-preview-set-for-50-bps-rate-hike-lagarde-holds-the-key-202303150502