Interest rates should rise if financial tensions remain “fairly limited”, the head of the central bank said in Bloomberg according to, referring to market concerns about the financial situation of banks.
According to the ECB’s baseline scenario, it expects market tensions to ease and then “further hikes will be necessary.” On the other hand, if financial stress were to increase, this might not be the right direction.
According to the news agency, these comments provide new insight into the thinking and evolution of the ECB leaders regarding how the central bank would balance stress in financial markets and an inflationary shock.
The ECB raised interest rates by half a percentage point in March and refrained from providing guidance on its next move. According to Lane, the turbulences of the American and Swiss banking systems do not have a direct effect on the euro zone, these tensions may subside. The central bank, for example, has a number of liquidity-providing instruments that can be used to prevent deposit withdrawals similar to those in the US or Switzerland.
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