The European Central Bank (ECB) increased interest rates by 50 bps on Thursday, taking the main deposit rate to 3 per cent. The move comes in the wake of financial market tension and sharply changing expectations for peak interest rates triggered by the collapse of Silicon Valley Bank last week.
After the February meeting, ECB president Christine Lagarde signalled that the central bank intended to raise rates by another 50 basis points in all but a “quite extreme” scenario. Given the market turmoil of the past week, there had been some speculation that the ECB might decide on a smaller increase or even pause hikes altogether. Carsten Brzeski, global head of Macro at ING, noted in the wake of Thursday’s decision that “price stability concerns clearly trump any financial stability worries – at least for the time being”.
Jack Allen-Reynolds, eurozone economist at Capital Economics, described the ECB’s decision to raise rates by 50bps as the “riskiest of the available options”. Allen-Reynolds said that “we think investors would have understood if the Bank decided to pause”, expressing doubt that a decision by the ECB to pause its tightening cycle would have been “taken as a sign of panic from policymakers”.