Live / The ECB confirms a 50 basis point rise in interest rates, despite pressure on banks. “It is impossible at this time to determine” the trajectory

Minutes before the ECB’s decision, the news spread that the monetary authority had told some rulers that “some banks” may be “vulnerable” due to tensions in the banking sector in the US and Europe.

It was only in the middle of this press conference that a journalist raised the issue. Luis de Guindos, vice president of the ECB, responds that he remembers well what he said to the leaders with whom he met: “Banks are resilienthigh capital ratios, liquidity buffers, limited exposure to institutions: banking is resilient”, he says.

“We are seeing some improvements in some areas of inflation, But not many“, says Christine Lagarde, defending that the inflation data”they still do not go in a direction that confirms” that the pace of price increases is slowing to levels consistent with the 2% target.

The President of the ECB reiterates that the turbulence in the markets and in the banking sector will not affect the commitment of the monetary authority to control the rise in prices in the economy.

The commitment to reduce inflation “intact”: “There’s more way to gosays Christine Lagarde.

“We will take the measures that are necessary,” guarantees the president of the ECB, noting that there were “3 or 4 membersof the Board who accepted but are not satisfied with the decision to raise 50 basis points and wanted to “give a little more time”.

Judging by Mário Centeno’s public statements, the Bank of Portugal governor was one of those “three or four” who do not entirely agree that this is the right dose of monetary tightening at this time.

Centeno asks for “patience” to evaluate the effects of the rate increases that have already been made. ECB chief economist predicts more hikes

How high can interest rates go? Asked by a journalist about the ECB’s plans for the coming months, Lagarde stressed that the statement says that the next decisions will be guided by three factors: 1) “the economic and financial data that is coming out”; 2) the “dynamics of underlying inflation” and 3) and the “robust transmission of our monetary policy”.

“It is impossible, at this time, to determine from the outset what the trajectory of interest rates will be.“, says Lagarde, repeating that there is a very large level of uncertainty in relation to how inflation will evolve and, also, how the banking crisis will evolve.

Lagarde recalls that the economic projections released today were finalized at the beginning of March and worked with data up to February 15, that is, more than a month ago. Toward Tensions in the banking sector “could” have a negative impact by the conditions of the credit, acknowledged the president of the ECB.

In the press conference in which she explains the decisions made today, Lagarde points out that these decisions were based on the new macroeconomic projections “were completed in early March”, that is to say, before the recent instability of the financial markets and, in particular, of the bank shares on both sides of the Atlantic.

These projections were just released today and, in addition to pointing to higher inflationary pressures, they indicate that “the European economy stagnated in the first quarter”, which contradicted some expectations of contraction.

“The economy should recover in the coming quarters”, anticipates the president of the ECB, acknowledging however that the risks”lean on the negative side(that is, there is a greater risk that the economic projections will surprise on the negative side than on the positive side).

The decision to proceed with the 50 basis point increase in interest rates is justified by the ECB with the fact that inflation is expected to remain “too high for too long”.

This March meeting coincides with the publication of new economic projections that forecast average inflation of 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025.

Core inflation, which excludes energy and some food prices, is expected to be stronger in 2023 than forecast in December. The average of this indicator – which worries the ECB more than global inflation – will be 4.6% in 2023, 2.5% in 2024 and 2.2% in 2025.

In the statement confirming the rise of 50 basis points in the interest rate, the ECB guarantees that “the banking sector is resilientbut is “closely monitoring tensions and will act if necessary.”

The ECB’s tools are fully equipped to provide liquidity support to the eurozone financial system, if necessary, to preserve the smooth transmission of monetary policy.

The ECB confirmed an increase of 50 basis points in the interest rate, despite the fact that the pressure on the banks led some to defend or bet that the monetary authority should make a smaller increase.

The most relevant rate for monetary policy at this time, the “deposit rate”, thus rises to 3%.

The ECB reportedly told European leaders on Tuesday that some banks may be vulnerable – This is information communicated a few minutes ago by the financial agencies that is causing an increase in the chances that the ECB will opt for a rise of less than 50 basis points.

Based on interest rate futures prices, right now the probability of confirming the 50 point increase is only 35%. This morning, the same indicator pointed to a 60% probability.