Following today’s news that ECB has decided to raise interest rates by half a percentage point, Richard Carter, head of fixed interest research at Quilter Cheviot comments:
“The European Central Bank has taken a look at what is going on in the banking sector right now and has effectively said they are comfortable with what is happening by raising rates by half a percentage point. Credit Suisse 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 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 are isolated incidents with their own set of circumstances.
“However, pressure will be placed on Christine Lagarde to act quicker than it has done with inflation if things do sour from here. The ECB continues to be behind the curve on rate rises compared to its US and UK counterparts. If inflation fails to come down swiftly this year, the bank could find itself with two competing forces – a struggling financial system that will impact on economic growth versus sticky inflation that shows no sign of returning to target. This is a tense period and one that will require central banks to be agile and swift in their decision making. For now, though they are deciding to stay the course on fighting inflation.”