economy

The European Central Bank rolled out its plan to raise interest rates by 50 basis points, or half a percentage point, warning that "inflation is set to remain very high for a very long time."

The ECB's plan to raise interest rates by 50 basis points was "endorsed" at yesterday's meeting, despite having been called into question after pressure from the Credit Suisse "collapse" raised concerns about the exposure of its banks euro zone.

Credit Suisse shares steadied after the bank said early Thursday it would draw on a $54 billion credit facility from the Swiss National Bank.

However, the ECB is leaving open the possibility of "freezing" future hikes, given an "increased level of uncertainty".

The bank's base interest rate (deposits) is now set at 3%

Thus, the basic interest rate of the bank (deposits) is now set at 3% and that for refinancing operations at 3.5%.

The ECB said it is closely monitoring current market tensions and is "ready to react as necessary to maintain price stability and financial stability in the euro area".

In the same statement, the ECB said that the euro area banking sector is "resilient, with a strong capital position and liquidity".

The turmoil in the markets, due to the bankruptcy of three American banks, and then the "hammering" of Credit Suisse had raised doubts whether the ECB would proceed with another big increase in its interest rates.

Revised forecasts

Specifically, according to the ECB's revised forecasts, which do not include any consequences from the recent financial crisis, inflation is estimated to average 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025 At the same time, price pressures are estimated to remain strong.

Inflation excluding energy and food prices continued to rise in February in line with revised forecasts and is estimated to average 4.6% in 2023, higher than forecast in December.

It is then forecast to fall to 2.5% in 2024 and 2.2% in 2025 as upward pressures from previous supply shocks and the opening of the economy fade and tighter monetary policy further dampens demand.

Core forecasts for growth in 2023 have been revised up by up to 1% on average as a result of both falling energy prices and the economy's greater resilience in the challenging international environment.

According to revised forecasts the ECB expects growth to accelerate further to 1.6% in both 2024 and 2025, supported by a strong labor market, improving confidence and a recovery in real incomes. At the same time, the recovery in both 2024 and 2025 will be weaker than forecast in December due to the tightening of monetary policy.