# Instant View: ECB sticks with big rate hike even as bank fears roil markets
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-03-16
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: European Central Bank Raises Interest Rates Amid Financial
Meta Description: The ECB increased its policy rates by 50 basis points in its sixth consecutive rate hike, prioritising inflation fight despite financial market instability.
URL: https://financedigest.com/instant-view-ecb-sticks-with-big-rate-hike-even-as-bank-fears-roil-marketshtml

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(Reuters) – The European Central Bank pushed through another big increase in interest rates on Thursday, sticking with its question to fight inflation despite turmoil in financial markets that has raised fears about a global banking crisis.

The ECB raised its three policy rates by 50 basis points in its sixth consecutive rate hike and said future moves will depend on incoming data.

“The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability,” the ECB said.

HIGHLIGHTS:

Thursday’s decision increases the [rate the ECB pays](https://www.financedigest.com/beat-the-exchange-rate-and-buy-that-dream-holiday-home-by-paying-in-pounds.html "Beat the exchange rate and buy that dream holiday home – by paying in pounds! ") on bank deposits, which is the benchmark for borrowing costs in the euro zone, to 3.0% from 2.5%.

MARKET REACTION:

STOCKS: European stocks seesawed in volatile trading and were last 0.2% higher on the day , having been flat just before the decision. Banking shares fell 0.1%.

BONDS: Germany’s 2-year bond yield, the most sensitive to interest-rate expectations, was last up 4 basis points on the day at 2.421% .

FOREX: The euro was flat at $1.0577, having fallen to a session low of $1.0552 from $1.0599 just before the ECB decision.

COMMENTS:

ERIK NELSON, MACRO STRATEGIST, WELLS FARGO, LONDON:

The ECB’s 50-bp hike is a clear [signal that it remains very focused on inflation](https://www.financedigest.com/european-shares-rise-as-us-inflation-data-signals-end-of-rate-hike-cycle.html "European shares rise as US inflation data signals end of rate-hike cycle"), which was the first thing they mentioned in the top line of the statement.

The euro was initially sold on the back of the 50-bp hike, presumably around fears of systemic [risk and/or weaker economic growth](https://www.financedigest.com/wto-sees-subpar-2023-trade-growth-with-multiple-risks.html "WTO sees “subpar” 2023 trade growth with multiple risks") in the euro zone. But the ECB also pledged to provide liquidity support as needed, likely limiting downside in [European rates and the euro](https://www.financedigest.com/dollar-outshines-euro-sterling-amid-european-bank-jitters.html "Dollar outshines euro, sterling amid European bank jitters"). European yield curves should continue to flatten after this decision.”

DANIELE ANTONUCCI, CHIEF ECONOMIST & MACRO STRATEGIST, QUINTET PRIVATE BANK, LONDON:

Given financial instability risks, there’s growing uncertainty on future ECB actions beyond this pre-signalled [rate hike](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May").

Our base case, currently, is that instability doesn’t derail the rate path too much. This means that because [core inflation](https://www.financedigest.com/boes-mann-falling-headline-inflation-high-core-make-policy-difficult.html "BoE’s Mann: Falling headline inflation, high core, make policy difficult") hasn’t even peaked, extra rate rises will follow.

The magnitude of these possible rate increases, however, remains to be seen and, we suspect, the central [bank may struggle](https://www.financedigest.com/banks-struggle-to-harness-big-data.html "BANKS STRUGGLE TO HARNESS BIG DATA") to deliver in a scenario of high market volatility.

JUSTIN ONUEKWUSI, [HEAD OF EMEA RETAIL INVESTMENTS](https://www.financedigest.com/hsbc-appoints-new-markets-head-amid-wider-investment-bank-reshuffle.html "HSBC appoints new markets head amid wider investment bank reshuffle"), LEGAL & GENERAL INVESTMENT MANAGEMENT, LONDON:

“Central banks have a real dilemma that they have a core mandate, which is inflation. But there’s also a [challenge now post-SVB and given banking](https://www.financedigest.com/big-banks-can-be-challengers-too.html "Big banks can be challengers too") volatility.

We have [learned from 2008 that central banks](https://www.financedigest.com/learning-the-lessons-of-the-bangladesh-bank-heist.html "LEARNING THE LESSONS OF THE BANGLADESH BANK HEIST") do have the tools that can help contain contagion.

“The ECB did say it was data-dependent.

“So, we have seen volatility and likely to see greater volatility. But central [banks have a clear mandate to manage inflation](https://www.financedigest.com/bank-of-england-still-needs-to-see-the-job-through-on-inflation-pill.html "Bank of England still needs to ‘see the job through’ on inflation: Pill") and they have to do that.

ULRIKE KASTENS, ECONOMIST EUROPE, DWS, COLOGNE:

The European [Central Bank delivers on its promises and raised key interest rates](https://www.financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoil.html "Central banks keep hiking rates amid banking turmoil") by another 50 basis points, despite tension on the financial markets. This is good news against the background of persistently high [inflation rates](https://www.financedigest.com/uk-inflation-rate-unexpectedly-rises-to-10-4-in-february.html "UK inflation rate unexpectedly rises to 10.4% in February").

At the same time, it [reaffirms its intention to intervene with liquidity measures if financial market](https://www.financedigest.com/spains-santander-reaffirms-targets-in-face-of-recent-market-turmoil.html "Spain’s Santander reaffirms targets in face of recent market turmoil") stability is threatened. But there is no pre-commitment of the further interest rate path, which is understandable in view of the current situation.

Nevertheless, the [ECB’s mandate is price](https://www.financedigest.com/explainer-oil-price-surge-changes-ecb-narrative-only-at-the-margins.html "Explainer-Oil price surge changes ECB narrative only at the margins") stability. This is not the case either at present or on the basis of the projections for the next few years. Therefore, the ECB´s work isn´t done, yet. Further interest [rate hikes](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") have to follow.

JUSSI HILJANEN, CHIEF EUROPE AND US RATES STRATEGIST, SEB, SWEDEN:

“Looking at the wording of the press release, it’s pretty much as expected. They avoid giving any explicit guidance except saying that they’re going to be data-dependent.”

I think if anything they seemed to be even a bit more relaxed in their tone on the risks of the [banking crisis](https://www.financedigest.com/how-the-2023-banking-crisis-unfolded.html "How the 2023 banking crisis unfolded"). They are really calm in the press release on that front.”

Obviously the future policy path will [depend crucially on what happens in the banking](https://www.financedigest.com/seven-out-of-ten-uk-adults-aged-25-44-never-seek-advice-on-dealing-with-debts-despite-depending-on-the-bank-of-mum-and-dad.html "Seven out of ten UK adults aged 25-44 never seek advice on dealing with debts despite depending on the bank of mum and dad") system, if the turbulence can be contained or if it gets worse again.

CARSTEN BRZESKI, [GLOBAL HEAD](https://www.financedigest.com/new-york-catches-up-with-london-to-head-citys-global-centres-survey.html "New York catches up with London to head City’s global centres survey") OF MACRO, ING, FRANKFURT:

We expect the ECB to turn more dovish today and in the coming weeks, probably hinting at a slowdown in the pace and size of any further [rate hikes.”](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike")

RICHARD CARTER, HEAD OF FIXED INTEREST RESEARCH, QUILTER CHEVIOT, LONDON:

The European Central Bank has taken a look at what is going on in the [banking sector right now and has effectively](https://www.financedigest.com/how-effective-talent-management-could-disrupt-the-retail-banking-sector.html "HOW EFFECTIVE TALENT MANAGEMENT COULD DISRUPT THE RETAIL BANKING SECTOR") said they are comfortable with what is happening by raising rates by half a percentage point.

[“Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") appears to be teetering on the edge, and the ramifications its collapse could have on the European banking sector are profound. But the [ECB continues to see inflation](https://www.financedigest.com/euro-zone-consumers-more-optimistic-on-inflation-ecb-survey-shows.html "Euro zone consumers more optimistic on inflation, ECB survey shows") as the bigger risk to tackle. And this could perhaps be a good sign, as it is hoped that the likes of [Credit Suisse and Silicon Valley Bank](https://www.financedigest.com/explainer-what-are-credit-default-swaps-and-why-are-they-causing-trouble-for-europes-banks.html "Explainer-What are credit default swaps and why are they causing trouble for Europe’s banks?") are isolated incidents, with their own set of circumstances.

DARIO PERKINS, MANAGING DIRECTOR GLOBAL MACRO, TS LOMBARD, LONDON:

They [raised rates](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike") because they had already said they would. But the complete lack of forward guidance suggests they don’t know what happens next.”

ANTOINE BOUVET, SENIOR RATES STRATEGIST, ING, LONDON:

“50 bps as promised. This sends a strong message on [inflation but the statement is peppered with reference to market](https://www.financedigest.com/hungarys-booming-wedding-market-doused-by-soaring-inflation.html "Hungary’s booming wedding market doused by soaring inflation") tensions.

“This means the ECB will be data dependent. It also stands ready to provide liquidity. Overall, this is in line with expectations.”

STUART COLE, HEAD MACRO ECONOMIST, EQUITI CAPITAL, LONDON:

“The ECB was basically caught between a rock and a hard place. It had already signalled to the market at its last meeting that a 50-bp hike could be expected, so to back-track now probably risked sending a message that [worries over financial stability](https://www.financedigest.com/banking-stability-worries-go-behind-closed-doors-at-imf-world-bank-meetings.html "Banking stability worries go behind closed doors at IMF-World Bank meetings") and contagion from the U.S. bank failures is seen as a serious [enough concern that it is trumping the need to continue](https://www.financedigest.com/to-what-extent-is-amls-continuing-globalisation-enough.html "TO WHAT EXTENT IS AML’S CONTINUING GLOBALISATION ENOUGH?") tightening policy as it battles inflation.

“Sending such a message could have actually been negative for the euro-zone finance sector as it would simply have frayed market nerves further.”

“The fact that the ECB has reiterated that it remains ready to preserve both price stability and financial stability is, for me, an acknowledgement to the markets that it is aware of the current turmoil, and that it is prepared to take action if necessary.”

EREN OSMAN, MANAGING DIRECTOR, [WEALTH MANAGEMENT](https://www.financedigest.com/wealth-management-consultant.html "Wealth management consultant"), ARBUTHNOT LATHAM, LONDON:

“Whilst we had anticipated a 25 bps with hawkish guidance, the ECB’s decision to move rates higher by 50 bps demonstrates that getting inflation under control remains their primary focus.”

“The recent market concerns surrounding the U.S. regional banks and more recently Credit Suisse do not pose a systemic [risk](https://www.financedigest.com/stocks-rise-after-bank-sale-fuels-investor-risk-appetite.html "Stocks rise after bank sale fuels investor risk appetite") to the global banking sector and central bankers will continue with their rate hiking policy.

(Reporting by the Markets Team, Compiled by Dhara Ranasinghe; editing by Yoruk Bahceli and Amanda Coopr)


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