The European Central Bank (ECB) did not have a shaking hand. Despite the violent shocks of American and European banks for a week, it decided on Thursday March 16 to increase its interest rates by 0.5 points, bringing the deposit rate to 3%.
“The ECB is playing with fire”, reacts the economist Véronique Riches-Flores. For her, this decision “returns to the bitter taste of July 2008”. On that date, the European Central Bank had raised its interest rate (by 0.25 points), only two months before the bankruptcy of Lehman Brothers and the biggest financial crisis in modern history. Bis repeat? “We are aware of our history”, replies Christine Lagarde, the President of the ECB. But she assures us that the situation is very different. “I was there in 2008 [en tant que ministre française de l’économie]. I remember it very well. Since then, we have made reforms: Basel 3 [renforcement des fonds propres des banques]liquidity ratios [également augmentés]… The banking sector is now in a much stronger situation. »
During the hour that her press conference lasted, the President of the ECB walked a tightrope, ensuring that she was leading the fight against inflation and against financial instability. “It’s not one or the other”, she assures. To carry out this balancing act, the ECB has chosen to act in two stages. The first was Thursday’s rate hike. Her credibility was at stake: at the previous meeting in February, she had already announced her ” intention “ to achieve this increase, in the name of the fight against inflation, which remains at 8.5% across the euro zone. Going back on his word would have been difficult. The ECB is thus continuing the fastest monetary tightening in its history, increasing its deposit rate from −0.5% in June 2022 to 3% today.
“A range of tools”
The second stage consists in abandoning any indication of its future action. While several members of the Governing Council had been putting pressure on for a few weeks to accelerate the rise in rates in the spring, the ECB now chooses to say to itself “dependent on economic data”. Clearly, everything will depend on how the situation develops. “It is not currently possible to determine the future path [des taux]. »
Mme Lagarde adds – but who doubted it? – that the central bank remains ready to intervene at any time if the banking sector needs support. “The ECB has an array of tools to provide liquidity support to the euro area financial system. »
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