ECB rate hike shadowed by stress in banking sector

Monday 20 March 2023

Amundi Convictions

March 2023 | 2 minute read    

   

The European Central Bank met on 16 March and decided, coherently with its guidance, to increase its three key interest rates by 50 basis points, bringing the deposit facility rate to 3.0%. Given the complexity of the current macroeconomic scenario, it has not committed to future hikes. 

President Christine Lagarde clarified that this type of decisions will be taken meeting by meeting and based on data. Inflation “is projected too high for too long”, as demand is supported by the expansionary fiscal policy and wages keeping growing fast.

The new macroeconomic projections unveiled an upward revision for core inflation and growth for 2023, but at the same time the rebound in growth expected in 2024 and 2025 has been revised lower.

The stress in the banking sector has captured much of the attention and questions during the press conference. The president reiterated how the EU banks are in a much stronger position than in 2008, thanks to strong capital and increased liquidity and that the ECB has a fully equipped policy toolkit ready to use.

After the press conference, on 19 March, Ms Lagarde also welcomed in a statement1 the swift actions taken by the Swiss authorities, further underlining the resilience of the EU banking sector. The statement has been followed by the news of a coordinated action2 with other major central banks to provide liquidity and enhance the provision of liquidity to the markets.

Finally, the ECB Banking Supervision, the Single Resolution Board and the European Banking Authority, issued a joint statement3 on 20 March welcoming the actions taken by Swiss authorities and reminded the established pecking order for creditors and shareholders in case of a banking resolution.

1. Source: ECB, Statement by Christine Lagarde, President of the European Central Bank, on the announcement on 19 March 2023 by the Swiss authorities
2. Source: ECB, Coordinated central bank action to enhance the provision of US dollar liquidity, 19 March 2023
3. Source: SRB, SRB, EBA and ECB Banking Supervision on the announcement on 19 March 2023 by Swiss authorities, 20 March 2023 Source: Amundi Institute, ECB Meeting: Five takeaways, 17 March 2023

IMPORTANT INFORMATION

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 20 March 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 20 March 2023

Doc ID: 2801537