Frankfurt (Germany), March 16 (EFE).- The European Central Bank (ECB) will foreseeably remain on the path of interest rate hikes today because it has not yet won the battle against inflation and despite the turbulence in the financial markets after the bankruptcy of the American Silicon Valley Bank (SVB).
The ECB has shown for weeks its willingness to raise the price of money in the euro area on Thursday by half a percentage point, to 3.5%.
In this way, the deposit facility, for which money is remunerated to banks over one day, would be 3%.
But the bankruptcy of Californian bank SVB, which specializes in financing technology start-ups, has shaken financial markets and raised fears of contagion to many other banks around the world, as occurred after the collapse of the bank of US investment Lehman Brothers, in 2008.
The US government has taken control of Silicon Valley Bank and guarantees deposits through the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve (Fed) does so with the supply of liquidity. This intervention has contained the panic in the markets.
The collapse of the SVB had repercussions throughout the banking sector and the entire world plummeted on the stock market and the markets began to think that the aggressive rise in interest rates by the Federal Reserve would have induced this debacle, and from there He has begun to speculate that the ECB is not going to raise its interest rates by half a point today and that it could opt for a smaller increase of a quarter of a point.
However, most analysts believe that the ECB will maintain its plans for a half percentage point increase because it has not yet won the fight against inflation.
The ECB’s objective is to bring inflation to 2%
Headline inflation slowed to 8.5% in February, but core inflation rose to 5.6%. The ECB maintains that its objective is to bring inflation to 2%.
The economist for Europe at the DWS manager, Ulrike Kastens, considers that “the ECB is far from reaching its inflation target in the medium term, so, as was already predicted at the February meeting, it is likely that it will rise again official interest rates by 50 basis points”.
“The core inflation rate, which rose to 5.6% in February, is likely to have alarmed members of the ECB Governing Council, not least because of the prospects for further growth,” Kastens said.
He added that the labor market remains strong, wages will rise, and labor shortages will also continue to cause wage increases.
However, the analyst also points out that the first signs of a slowdown are visible, the economy is slowly losing momentum and loans, especially in the real estate market, are falling significantly.
For the senior economist at Generali Investments Martin Wolburg, “that the ECB will opt for increases of 50 basis points in the next two meetings (March and May)”, while indicating that “the disinflation induced by energy prices will take momentum in the coming months. But core inflation will remain much more stable.”
The ECB is also publishing today its new forecasts for inflation and growth in the euro area.
In December, it forecast growth in the euro area of 0.5% in 2023 with inflation of 6.3% and in 2024 growth of 1.9% with inflation of 3.4%.
The ECB forecast in December that inflation will be 2.3% in 2025, so it will still exceed its 2% target.