European Central Bank Increases Rates by 50 BPS

Pointing at persistent inflation, the European Central Bank (ECB) has increased benchmark rates by 50 BPS.

The Governing Council of the ECB said it decided to raise the three key interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.50%, 3.75%, and 3.00% respectively, with effect from 22 March 2023.

The ECB said the increase was in line with its goal of returning inflation to 2%.

The Governing Council said that it is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.

The bank added that the euro banking sector is strong with solid liquidity positions.

The decision to increase rates arrives at a time of heightened volatility and concern in the global banking system. Earlier today, Credit Suisse announced that it was tapping a $54 billion lending facility from the Swiss National Bank. Some observers worry that more banks may be in need of support.

Thomas Mehlkopf, Head of Working Capital Management at SAP & Taulia, commented on the ECBs decision to hike interest rates:

“It comes as no surprise that the ECB has decided to raise rates and it is doubtful that this will be the last rate rise we will see in 2023. Inflation in the Eurozone remains stubbornly high and nowhere near the 2% target set by the ECB’s Governing Council. As liquidity dries up, it is vital that working capital management is brought higher up the corporate agenda. Not only to secure the growth of larger businesses but that of their supply chain.”

The ECB will hold a press conference on its rate decision at 14:45 CET today.

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