The European Central Bank just brought in another big rate hike despite Credit Suisse rattling bank stocks
- The European Central Bank hiked interest rates by 50 basis points to 3.5% Thursday.
- It's the sixth time in a row that the central bank has raised borrowing costs.
The European Central Bank raised interest rates by 50 basis points Thursday, pressing ahead with its campaign to tame inflation despite the threat of a potential banking crisis.
The central bank has now hiked interest rates at six consecutive meetings, lifting the cost of borrowing from near-zero to 3.5% as it battles to tame eurozone inflation, which still ran at a red-hot 8.5% in February.
The decision shows that the ECB is sticking to the plan it signaled at its February meeting, when policymakers said that they expected to bring in a 50 basis point hike.
There was some speculation the central bank might change its mind, after fears of a banking crisis rattled markets in recent days. Traders had priced in the planned hike before the crisis, but some pivoted to betting on a 25-point increase just before the ECB's policy decision.
"The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area," the ECB said in its statement.
"The euro area banking sector is resilient, with strong capital and liquidity positions."
"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 euro fell 0.2% to $1.0580 after the policy decision. Europe's flagship Stoxx 600 stock index was trading broadly unchanged.
Europe's banking sector, while recovering somewhat, is still on edge after Credit Suisse's sharp stock-market plunge Wednesday.
The Swiss bank's Zurich-listed shares plummeted as much as 32% and finished the day 24% lower after its top investor said it wouldn't provide any more support.
They were up 21% at just over 2 Swiss francs ($2.15) at last check Thursday after Credit Suisse said it would borrow $54 billion from the Swiss National Bank to bolster its liquidity.
Other European bank stocks plunged Wednesday on contagion fears, with Switzerland's UBS dropping 9%, France's BNP Paribas down 10%, and Spain's Banco Santander slipping 7%. All were rising in Thursday trading.
The ECB said it brought in the 50 basis point rate hike because it expects inflation to remain too high for too long, and it wants to bring the rate down to 2%.
Even so, it lowered its projections for where it expects inflation to be over the next few years, saying energy prices will rise less than previously expected. It now sees the average rate at 5.3% this year, compared with its December forecast for 6.3%, and then at 2.9% in 2024 and 2.1% in 2025.
But it did note the inflation projections were made before markets were rattled.
"As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth," the ECB said.
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