Silicon Valley Bank collapse ‘could force central banks to stop interest rate rises’
The world’s most powerful central banks could be forced to stop raising interest rates after the Silicon Valley Bank crisis, economists have said, amid growing signs of financial stress linked to rapid increases in borrowing costs over the past year.
Analysts said the US Federal Reserve would probably leave interest rates on hold at its decision next week, as the meltdown at the California-based technology lender ripples through global financial markets.
Against a backdrop of concern over contagion spreading through the wider global banking industry, financial market expectations for significant further rate increases from the Bank of England and the European Central Bank also eased on Monday.
Goldman Sachs said the Fed would probably now keep rates on hold at the current level of 4.5% to 4.75%, after previously expecting another rise.
“In light of the stress in the banking system, we no longer expect the FOMC [federal open markets committee] to deliver a rate hike at its next meeting on 22 March (v our previous expectation of a 25 basis point hike),” analysts at the bank wrote in a note to clients.
It said the US central bank would probably still raise rates by 0.25 percentage points in May, June and July as it seeks to counter high levels of inflation, before a peak in rates of 5.25% to 5.5%. “Though we see considerable uncertainty about the path,” they added.
As recently as last week before the failure of SVB, a rate increase of 0.5 percentage points had been expected in financial markets, after the Fed chair, Jerome Powell, warned more increases would be required to cool inflation.
The Bank of England had been given an almost 100% probability by traders in financial markets of raising rates by 0.25 percentage points at its
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