ECB Raises Rates By 50 Bps

Key Insights

• ECB raised the interest rate from 3% to 3.5%. 
• The Bank expects that Euro Area GDP will grow by 1% this year. 
• ECB believes that the Euro Area banking sector is resilient despite Credit Suisse’s problems. 

ECB Raised Rates Despite Credit Suisse Crisis

On March 16, ECB raised the interest rate from 3% to 3.5%, in line with the analyst consensus. Credit Suisse’s problems had no impact on the ECB decision. It looks that the central bank believes that Switzerland will be able to provide enough support to the troubled bank to avoid contagion.

ECB commented: “The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions.”

ECB noted that it expected inflation of 5.3% in 2023, 2.9% in 2024, and 2.1% in 2025. The recent decline in energy prices boosted growth outlook, and ECB expects growth of 1.0% in 2023, 1.6% in 2024, and 1.6% in 2025. The growth forecast for 2024 and 2025 is weaker than projected in December due to the tightening of the monetary policy.

EUR/USD Declines After ECB Decision

EUR/USD declined towards the 1.0550 level after the ECB decision. While higher interest rates are bullish for the euro, traders are worried that the ECB may put too much pressure on the economy. The safe-haven U.S. dollar moved higher after the decision.

SP500 futures declined towards the 3870 level as traders sold riskier assets after the ECB decision. Gold tested the $1930 level as demand for safe-haven assets increased.

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