Banking crisis forces ECB policymakers to rethink rate hikes, but focus still firmly on inflation
European Central Bank policymakers are reconsidering the path of interest rate hikes in light of last month's banking turmoil, but remain committed to reining in core inflation.
Contagion fears set in motion by the collapse of U.S.-based Silicon Valley Bank in early March led to the downfall of several other regional lenders stateside, and culminated in the emergency rescue of Credit Suisse by fellow Swiss giant UBS in Europe.
Though panic at the time led to a flight of investors and depositors from the global banking sector, the market has since calmed amid a consensus that the bank failures were the result of idiosyncratic frailties in business models, rather than a systemic issue.
The ECB hiked rates by 50 basis points in mid-March at the height of the banking turmoil, despite some calls for the central bank to pause.
However this week, several Governing Council members noted the risk of a knock-on economic impact as interest rates continue to rise in an effort to tackle inflation.
Headline inflation in the euro zone dropped significantly in March to an annual 6.9%, largely as a result of falling energy prices. However core inflation — which excludes volatile energy, food, alcohol and tobacco prices — rose to an all-time high of 5.7%.
The events of the past month have caused some ECB policymakers — such as Austrian National Bank Governor Robert Holzmann — to rethink.
He had previously suggested that the ECB's Governing Council may need to consider as many as four further rate hikes, starting with a 50 basis point increase at its next meeting in May.
But he told CNBC on Thursday that «things have changed» since those comments two months ago, and that the central bank will need to assess the situation more closely
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