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ECB's Lagarde: Future Rate Hikes Open 03/22 06:04
European Central Bank President Christine Lagarde said future interest rate
decisions are open after upheaval in the global banking system left the
economic outlook "blurrier" than just a few weeks ago.
FRANKFURT, Germany (AP) -- European Central Bank President Christine Lagarde
said future interest rate decisions are open after upheaval in the global
banking system left the economic outlook "blurrier" than just a few weeks ago.
Whether to keep hiking rates would depend on incoming data, above all
whether the bank could see signs that painfully high inflation is headed
convincingly down, she said during a conference Wednesday at Frankfurt's Goethe
University.
"With high uncertainty, it is even more important that the rate path is data
dependent," she said. That means "we are neither committed to raise further nor
are we finished with hiking rates."
She said "the recent financial market tensions " have "added new downside
risks and have made the risk assessment blurrier."
The open-ended approach is a shift from the ECB's earlier stance of clearly
indicating that more rate hikes were in the offing as it underlined its
determination to reduce inflation.
But the failure of Silicon Valley Bank in the U.S. has sent shudders through
financial markets due to fears that other banks may suffer losses as central
banks in the U.S., Britain and Europe rapidly increase interest rates to battle
inflation.
Investor worries about banks were intensified by troubles at Swiss bank
Credit Suisse, which was rescued through a takeover by rival UBS. Troubles at
Credit Suisse long predated the increases in interest rates, however.
The ECB raised rates by a larger-than-usual half-percentage point Thursday
after all but promising the move in January. It's targeting consumer prices
that rose 8.5% last month from a year earlier in the 20 countries that use the
euro currency.
Higher rates cool off inflation by making borrowing more expensive for new
purchases or expanding a business, reducing demand for goods. But with the
banking turmoil, commercial banks may become more hesitant to risk lending,
which could restrict credit more than central banks might have intended.
The U.S. Federal Reserve is facing a similar conundrum Wednesday. Before the
bank woes, the Fed was expected to raise rates by a quarter- or even half-point.
In Europe, Lagarde made clear that she sees "no tradeoff" between fighting
inflation and supporting stability in the banking system. She says the ECB has
separate tools for each issue: interest rates to combat price spikes and
lending support to banks in case of risks.
Europe's economic prospects brightened slightly after making it through the
winter without running out of natural gas after Russia cut off most supply to
the continent amid the war in Ukraine.
The German Council of Economic Experts on Wednesday raised its outlook for
the eurozone's largest economy to 0.2% growth from 0.2% contraction in its
previous outlook in November.