UPDATE 2-Credit Suisse rescue gave ECB confidence to hike rates - sources

Kitco Media
By Reuters
Published:
Updated:
Reuters
(Adds expectation about rates) FRANKFURT, March 16 (Reuters) - European Central Bank policymakers only agreed another major increase in interest rates on Thursday after Credit Suisse secured a lifeline and markets calmed, four sources familiar with the matter told Reuters. Policymakers nervously pored over their phones and received regular market updates from ECB staff on the first day of their meeting on Wednesday, the sources said, as concerns about Credit Suisse dragged down shares in banks across the euro area and stoked fears about a new financial crisis.


The sudden rout had thrown the ECB's well-defined plan for another 50 basis point rate increase into turmoil and put a question mark over the outlook for the economy and inflation, the sources said. But the Swiss National Bank's decision to bankroll Credit Suisse with a 50 billion Swiss franc ($54 billion) loan overnight helped steady financial markets and gave most policymakers the confidence to go ahead with the planned rate increase, the sources said.


Some did want to leave rates unchanged on Thursday and to wait for financial markets to settle down, rather than raise borrowing costs for a sixth time and risk making matters worse, the sources added.


An ECB spokesperson declined to comment.


Investors had been doubting the ECB's resolve on Thursday to go through with a half-point hike it flagged in February, with some analysts predicting a 25 basis points move. But the sources said this was never discussed, with the debate focussing on a 50 basis point move or none at all.


The ECB removed from its policy message any indication that rates would be raised again and said instead that future decisions would depend on incoming "economic and financial data" and acknowledged "additional uncertainty" around the outlook as a result of financial tensions. One source on the governing council said he thought borrowing costs would be increased again, although it would be unwise to say so before financial volatility subsides.


President Christine Lagarde said during her news conference that the ECB would have "a lot more ground to cover" in raising rates if its current forecasts, which were formulated before trouble in the banking sector started last week, held up.


($1 = 0.9289 Swiss francs) (Reporting by Francesco Canepa, Balazs Koranyi and Frank Siebelt; Editing by Toby Chopra and Mark Potter)

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