Because the ECB will change course a little

16 March 20231 year ago babelfish

The ECB has decided to raise rates by 50 basis points, but has rethought its course. The analysis of Dave Chappell, Senior Fixed Income Portfolio Manager at Columbia Threadneedle Investments

Of all the central banks due to meet this month, the ECB had the least enviable task.

Should it have lived up to its pledge of a 50 basis point hike, continuing its belated fight against core inflation and the risks of entrenching higher prices? Or choose to adjust to just 25 basis points or even abstain, in the face of heightened uncertainty in financial markets, triggered late last week by the failure of Silicon Valley Bank and heightened yesterday by the dramatic drop in Credit Suisse 's share price .

While the Fed and the Bank of England have the "luxury" of an extra week to assess the potential negative repercussions of the current tensions, President Lagarde and the ECB committee met yesterday with risk markets reeling and money markets who wondered about the future path of European reference rates.

WHAT THE ECB DECIDED

The decision was to maintain the 50 basis points, but the previously charted course has been set aside. Going forward, politics will continue to be driven by incoming data. Increased market uncertainty and volatility was recognized and new forecasts for headline inflation came in significantly lower, due to falling energy prices.

INFLATION REMAINS THE TOP CONCERN

However, core inflation remains the primary concern and revised forecasts are less optimistic, even assuming further rate hikes going forward; therefore, it appears necessary to continue moving at an accelerated pace, at least for now. The decision was supported by a large majority, while some have suggested a more cautious approach at this stage until there is more clarity on current financial stability issues.

The coming weeks may prove that the cautious few should perhaps have spoken their mind more forcefully.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-la-bce-cambiera-un-po-rotta/ on Thu, 16 Mar 2023 15:40:43 +0000.