ECB goes ahead with 50 basis point interest rate hike
Rate-setters in Frankfurt went ahead and raised short-term interest rates by 50 basis points despite recent heightened stress in the banking sector on either side of the Atlantic.
Some analysts had argued that not following through with its most recent guidance might be interpreted as an admission of serious concern around lenders.
In its policy statement, the European Central Bank said the move was in line with its goal of a "timely return" of inflation to its 2.0% medium-term target.
Nonetheless, it stressed the importance of its data-dependent approach and conceded that there was an "elevated" level of uncertainty.
Indeed, in her post-meeting press conference, ECB chief, Christine Lagarde, said that the path that lay ahead for policy could not be determined.
It was data-dependant although if their economic forecasts were correct then there would be more ground to cover.
"The euro area banking sector is resilient, with strong capital and liquidity positions," it added.
"In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy."
The ECB added that it was closely following the situation in markets and stood ready to respond as necessary.
The monetary authority also published its latest staff macroeconomic projections out to 2025, which envisaged lower inflation and faster economic growth.
However, recent events in the banking space meant that there was now added uncertainty around its new baseline forecasts, it said.
Inflation in the euro area was seen averaging 5.3%, 2.9% and 2.1% in 2023-25, respectively.
Core CPI on the other hand was now seen coming in higher than before in 2023 at 4.6%, before retreating to 2.5% in 2024 and 2.2% in 2025.
Economic growth for 2023 was now pegged at 1.0% and expected to quicken to 1.6% in both 2024-25.
Interest rates on the main refinancing operations, the marginal lending facility and the deposit facility would be increased by 50bp to 3.50%, 3.75% and 3.00%, respectively, effective from 22 March.
-- More to follow --