ECB set to raise interest rates amid banking system concerns

March 13, 2023 (MLN): The European Central Bank (ECB) is set to raise interest rates for the sixth time in a row on Thursday, in an effort to curb inflation.

The move is expected to increase the ECB's three main rates by 3.5 percentage points since July, making it one of the fastest rate hikes in history.

However, concerns have been raised about the health of the banking system following the sudden collapse of US lender SVB. European bank shares plunged last week amid fears of a spillover effect.

ECB policymakers will be closely monitoring the market turmoil ahead of the meeting in Frankfurt.

Investors will also be looking for clues about the ECB's future moves, with some economists predicting a "heated discussion" between dovish and hawkish policymakers.

Dovish policymakers may want to slow down the rate hikes to ease the pain of higher borrowing costs, while hawks may push to stay the course as inflation remains above the ECB's two-percent goal.

Despite concerns about the financial fallout from rising rates, French Finance and Economy Minister Bruno Le Maire sought to calm jitters on Monday, saying he did not see any risk of contagion.

Germany's finance watchdog also said that the SVB collapse posed no threat to financial stability.

Baader Bank analyst Robert Halver has suggested that the ECB may opt for smaller rate hikes after Thursday's decision "to take some pressure off" amid concerns about over-indebtedness and vulnerable debtors.

Overall, Thursday's decision by the ECB is expected to have a significant impact on the European economy, with investors and policymakers closely monitoring the situation in the weeks and months ahead.

Copyright Mettis Link News