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Anticipation of the decision of the European interest rate after the crisis of the collapse of #Silicon_Valley

Anticipation of European interest rate decision amid global concern over banks – Sky News Saudi Arabia

The European Central Bank meets on Thursday amid extraordinary turbulence in financial markets that could force it to back away from plans to raise interest rates again, even as inflation remains high.
The long-awaited interest rate decision by the European Central Bank comes amid uproar in global markets after the Silicon Valley collapse crisis, and sharp falls in shares of Swiss Credit Suisse Bank, raising concerns about transmission of infection to the banking sector worldwide.

Policy makers are in a dilemma over how far to raise interest rates to continue their battle to curb inflation without causing a shakeup in the financial sector.

The European Central Bank pledged to raise interest rates by 50 basis points at its meeting on Thursday, but the collapse of Silicon Valley in the United States last week raised concerns about the impact of monetary tightening on banks, in addition to the problems it suffers. Credit Suisse.

The European Center fears damaging its credibility in plans to combat inflation, which fell to 8.5 percent in the euro zone last February but is still well above its 2 percent target.

The expected interest rate decision from the European Central Bank comes a week before the US Federal Reserve meeting. It expected a 50 basis point hike a week ago.

  • Last February, the European Central Bank raised its main interest rates for the fifth consecutive time, to 3 percent, and 2.5 percent on deposits.
  • In 2022, the European Central Bank will raise interest rates 4 times, up to a total of 250 basis points (the fastest rate hike rate ever)
  • Investor expectations currently point to just a 40-45% chance the ECB will raise interest rates by 50 basis points, up from 100% last week.
  • Expectations for an interest rate increase of 50 basis points were based on inflation remaining very high for several years, in addition to the recovery of the euro area economy. Negative stress and expectations! French academic Pierre-Louis Remo said, in statements to “Sky News Arabia Economy”, that “there is a state of lack of optimism about the next decision of the European Central Bank, which is expected to approve an interest rate hike. These decisions (increasing interest) are worrying investors and businessmen.” European companies and citizens too. He added that the Russian-Ukrainian crisis had serious repercussions in Europe, so it is expected that the decisions to raise the interest rate will continue to curb inflation, but these decisions caused great damage to the European citizen, especially those forced to pay the loans, in addition to the fact that raising the interest rate constitutes a burden related to the countries’ debts, which is reflected in the economic situation of countries that mostly live in difficult conditions in terms of the size of the public debt

And the president of the European Central Bank, Christine Lagarde, confirmed on February 18 the bank’s intention to continue raising the interest rate by 50 basis points in March, saying:

  • Inflation rates put a lot of pressure, especially due to energy prices
  • The European Central Bank will publish a new set of economic forecasts in order to assess the future course of European monetary policies What is a “restricted level”? If the ECB does indeed raise interest rates as expected, it will have raised them six times in a row since July, a total of 3.5 percentage points. As a result, rates approach a level called the “cap,” further curbing consumption and investment to ease price pressure. Lagarde explained that keeping interest rates “at a restricted level will reduce inflation in the future by curbing demand and will also protect against the risk of a continuous increase in inflation expectations” by families and companies. The latest data from the European Union statistical office (Eurostat) indicate that:
  • Consumer price inflation in the 20 countries operating in euros fell to 8.5 percent in February from 8.6 percent in January (on the impact of falling energy costs).
  • Core inflation (which excludes food and energy prices) rose to 5.6 percent, from 5.3 percent
  • Price growth in the services sector (which is the largest component of core inflation) rose to 4.8 percent, compared with 4.4 percent in January. Will the US Federal Reserve abandon its rate hike policy in March? Fears of “Silicon Valley” infection Some expectations say that the recent exciting economic events in the United States of America, with the collapse of Silicon Valley and Signature banks, may have repercussions in the European Central Meeting; Since these banks are regional in nature However, euro zone banking supervisors believe that the collapse of two US banks will have limited effects on banks in the region, but insist on the need to closely monitor any further repercussions.

A senior European Central Bank supervisor said eurozone banks were well-funded and more conservative than Silicon Valley Bank, which mostly lends to tech startups, and rival Signature Bank in New York, which closed the weekend. of week.

For his part, the head of the Energy Studies Unit of the Habtoor Center assures, in an interview with “Economy Sky News Arabia”, that inflation in the United States is “out of control”, and given its high rates, the problem of bank collapse. , the US Federal Reserve will have to raise the interest rate to about 25 basis points, and this means that the European Central Bank will raise the interest rate in the next few meetings to catch up with the US.

And he stresses that the situation of a number of European banks in the recent period is very difficult, and if the US loses control over the wave of bank collapse, it may spread to Europe.

In an unprecedented step, the Swiss Central Bank intervened by making a $54 billion loan available to Credit Suisse to boost confidence in the bank after the bank’s shares plunged in trading on Wednesday after its largest shareholder said it did not intend to add more liquidity to the bank.

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