No fundamental change in the European Central Bank’s outlook despite Silicon Valley Bank collapse, says insider
ECB president Christine Lagarde. Picture: REUTERS
But a source close to the ECB’s rate-setting Governing Council said there was no fundamental change in the outlook, so ditching a widely repeated commitment for a 50 basis point rate increase on Thursday would damage credibility. The source said that the ECB’s new projections for the years ahead will be lower than in December but they still put price growth well above the central bank's 2% target in 2024 and slightly above it in 2025.
Still, dovish policymakers who have been preaching greater caution in raising borrowing costs and warning about the risk of financial instability felt vindicated by the recent market turbulence, the source said. Money markets were pricing in an 85% chance of the ECB raising its deposit rate by 50 bps to 3% on Thursday, with some banks including Deutsche Bank expecting a smaller or no increase.
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