Latest News on Stock Markets and Banks: Live Updates

Latest News on Stock Markets and Banks: Live Updates

The European Central Bank pushed ahead with a half-point rate hike on Thursday, sticking to its previously announced plan but saying the recent turmoil in financial markets had made the path ahead much more uncertain.

The central bank said in a statement that its policymakers are “closely monitoring the current market tensions” and the bank “stands ready to react as necessary to safeguard price stability and financial stability in the euro area”.

In recent months, the central bank has shown investors the way forward, committing in advance to its next rate move. On Thursday, however, the bank was less clear about the next step as it determines the impact of past tightening on the economy and inflation.

“The increased level of uncertainty reinforces the importance of a data-dependent approach” to policy decisions, the statement said.

The bank raised its deposit rate to 3 percent, the highest since October 2008.

“Inflation is likely to remain too high for too long,” the bank said, adding that the move was necessary to ensure inflation’s “timely” return to the bank’s 2 percent target. Bank officials forecast inflation will average 5.3 percent this year and still be slightly above target in 2025.

Frankfurt, Germany, where representatives of the European Central Bank met on Thursday. The bank said it was “ready to respond as needed to safeguard price stability and financial stability in the euro area”.Credit…Michael Probst/Associated Press

As financial markets collapsed this week, traders reduced bets on how much major central banks would hike interest rates this year since the collapse of California’s Silicon Valley bank and concerns over major Swiss lender Credit Suisse. Analysts have begun to speculate that the Federal Reserve will not be able to continue with higher interest rates as expected as markets remain nervous about the health of many banks, particularly US regional banks, and their ability to withstand higher interest rates to withstand.

The euro zone has little direct exposure to Silicon Valley Bank, but banking worries drew much closer on Wednesday when Credit Suisse’s share price fell to a record low after the Swiss bank said it had a “material weakness” in its financial reporting controls found that its largest shareholder was reluctant to inject further funds for regulatory reasons. Credit Suisse said early Thursday it would borrow up to 50 billion Swiss francs, or about $54 billion, from the Swiss central bank and buy back some of its debt. Hours later, Credit Suisse shares were up about 20 percent at the start of trading.

The European Central Bank stressed in its statement on Thursday that it has tools in place to protect financial stability in the region, but said the banking system was “resilient, with strong capital and liquidity positions”.

She highlighted a new tool she created last summer, the anti-spill tool, which could be used to counter “unjustified, disorderly market dynamics” that threatened the central bank’s ability to implement its monetary policy decisions.

Regarding interest rates, “it is not possible to predict the way forward at this time,” Christine Lagarde, the President of the European Central Bank, later said at a press conference in Frankfurt.

“It is not possible to say at this stage how the path will continue,” European Central Bank President Christine Lagarde told reporters after Thursday’s bank meeting in Frankfurt.Credit…Heiko Becker/Reuters

But if the current market uncertainty abates and the economy proceeds as the bank expects, then policymakers still have “more ground to cover,” she added.

Last month, ECB policymakers said they expect to hike rates by half a point at this week’s meeting because they are determined to stamp out persistent inflationary pressures, even as inflation appears to have peaked. Consumer prices in the 20 countries that use the euro as their currency rose at an annual rate of 8.5 percent in February, slightly below the rate in January and below the peak of 10.6 percent in October.

Aside from the headline inflation rate for the eurozone as a whole, the details were more worrying for some policymakers. Some major economies, including France and Spain, reported higher inflation rates. Core inflation, which excludes volatile energy and food prices and is used to measure how embedded inflation is in an economy, also rose last month.

Lower wholesale energy prices in Europe will help push inflation towards the central bank’s 2% target. But policymakers are focused on so-called underlying inflation, which will show whether inflationary pressures are still building up and making it difficult to meet the inflation target on a sustainable basis. Policies such as wage inflation and services inflation will be closely monitored.

As the central bank tightens monetary policy and moves closer to halting rate hikes, signs of a split in the 26-member Governing Council are mounting.

Last week, Bank of Italy governor Ignazio Visco publicly criticized his policymakers for expressing their views on where interest rates might go.

“We have agreed to decide ‘meeting by meeting’ with no ‘forward guidance’,” he said. “Therefore, I don’t value what my colleagues say about future and prolonged rate hikes. I don’t know, we don’t know enough.”