ECB raises key interest rate despite bank jolts

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Christine Lagarde (67) does the same as her US colleague Jerome Powell (70): The European Central Bank (ECB) Governor raises the key interest rate by 0.25 percentage points. In the euro area it is currently 3.75 percent.

The US Federal Reserve announced yesterday that it will raise interest rates by 0.25 percentage points. The base rate in the US is between 5 percent and 5.25 percent. This is the highest value in 16 years!

Bank quake poses problem for monetary authorities

Like his American counterpart, Lagarde is battling hyperinflation. In the euro area, this is 7 percent. The target would be 2 percent. But Lagarde and other money watchers can’t tighten the rate screws too much right now. You run the risk of causing more banks to fail.

On Thursday, Pacific Western Bank in the US became the fifth financial institution to go bankrupt since the beginning of the year. Just days ago, First Republic Bank had to be swallowed by JP Morgan in an emergency. The bailout is strongly reminiscent of the urgent takeover of Credit Suisse in Switzerland by UBS.

In the long run, banks will benefit from higher interest rates – after all, customers will have to dig deeper into their wallets for loans. In the short-term, the banks on the return of interest rates took a wrong step. They’re sitting on mountains of fixed-rate bonds before the interest rate reversal – they yield nothing. They are losing value in the face of rising interest rates, which is causing billions of dollars to be wiped out.

SNB is still waiting

Credit Suisse’s collapse shows that the problem is by no means limited to US regional banks. “The uncertainty is so great that even a false rumor can lead to a bank run,” said Sergio Rossi, 55, Professor of Macroeconomics and Monetary Policy at the University of Freiburg at Blick.

Among other things, he nominated Deutsche Bank as a shaky candidate. Christine Lagarde and the ECB must have been very careful in making their interest rate decisions so as not to make the banking crisis worse. They have to walk a tightrope, weighing inflation and bank jolts.

In Switzerland, the key interest rate is currently 1.5 percent, which is significantly lower than abroad. At 2.9 percent, inflation in Germany is also significantly lower than elsewhere. The Swiss National Bank (SNB) will not decide on interest rates again until June. SNB boss Thomas Jordan (60) is under less pressure than his colleagues abroad.

Source :Blick