European Central Bank Raises Interest Rates by 50 BPS Amidst Banking Chaos

Vignesh Karunanidhi
European Central Bank Raises Interest Rates by Basis Points Amidst Banking Chaos
Source: Council on Foreign Relations

The European Central Bank has made the decision to hike the interest rate by 50 basis points today. This decision comes amidst the latest banking chaos, which has ended in the closure of some of the largest banks. The last few days witnessed the downfall of Silvergate Bank, Silicon Valley Bank, Signature Bank. There was also the trouble at Credit Suisse Bank, among other lenders.

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Even though European banks are better capitalized according to analysts, the past week’s tumultuous falls of banks have made the European Central Bank raise interest rates by 50 BPS.

European Central Bank’s decision comes amidst rising inflation and banking chaos

The inflation rate in February touched 8.5% in the euro area, which is still higher than the target of 2%. The ECN president Christine Lagarde also addressed last week that an interest rate hike was “very likely.” This comment was before the collapse of the Silicon Valley Bank, which was considered one of the largest bank failures since 2008.

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However, the ongoing events have tempted the ECB to stick to a 50 basis point interest rate hike rather than roll back to a quarter-point hike.