1 December 2023

Christine Lagarde, President of the European Central Bank (ECB), during a press conference on the monetary policy of the euro zone in Frankfurt (Germany), March 16, 2023.

The European Central Bank (ECB) did not have a shaking hand. Despite the violent shocks of American and European banks for a week, it decided on Thursday, March 16, to increase its interest rates by 0.5 points, bringing the deposit rate to 3%.

“The ECB is playing with fire”, reacted the economist Véronique Riches-Flores. For her, this decision “returns to the bitter taste of July 2008”. On that date, the Frankfurt institution had raised its interest rate (by 0.25 points), only two months before the bankruptcy of Lehman Brothers and the biggest financial crisis in modern history. Bis repeat? “We are aware of our history”replied Christine Lagarde, its president.

However, she claimed that the situation was very different. “I was there in 2008 (as French Minister of Economy). I remember very well. Since then, we have made reforms: Basel 3 (reinforcement of bank capital)liquidity ratios (also increased)… The banking sector is now in a much stronger situation. »

Read also: The European Central Bank announces a further 0.5 point rate hike despite the turmoil in the banking sector

During the hour that his press conference lasted, Mr.me Lagarde walked a tightrope, ensuring that he was leading the fight against inflation and against financial instability. “It’s not one or the other. » To carry out this balancing act, the ECB has chosen to act in two stages. The first was Thursday’s rate hike. Her credibility was at stake: at the previous meeting, in February, she had already announced her ” intention “ to proceed with this increase, in the name of the fight against inflation, which remains at 8.5% in the euro zone. Going back on his word would have been difficult. The ECB is thus continuing the fastest monetary tightening in its history, increasing its deposit rate from −0.5% in June 2022 to 3% today.

“A range of tools”

The second stage consists in abandoning any indication of its future action. While several members of the Governing Council have been stepping up their pressure over the past few weeks to accelerate the rise in rates in the spring, the ECB has chosen to say that it is now “dependent on economic data”. Clearly, everything will depend on how the situation develops. “It is not currently possible to determine the future path (rates). »

Mme Lagarde added – but who doubted it? – that the institution remained ready to intervene at any time if the banking sector needed support. “The ECB has an array of tools to provide liquidity support to the euro area financial system. »

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