Lede

The ECB is reassessing its path of interest rate hikes as a result of recent banking turmoil, but remains committed to reducing core inflation.

Summary

• The collapse of Silicon Valley Bank in early March led to the downfall of several other regional lenders in the US and led to the emergency rescue of Credit Suisse by UBS in Europe.
• The ECB hiked rates by 50 basis points in mid-March despite some calls for the central bank to pause.
• However, several Governing Council members have 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 reconsider the possibility of four further rate hikes, starting with a 50 basis point increase at its next meeting in May.
• However, Holzmann stated that the central bank will need to assess the situation more closely beyond the next meeting, given the changes in the outlook.
• Ignazio Visco, the Bank of Italy governor, called for patience in assessing the ECB's rate hike trajectory, especially since credit conditions have "substantially tightened."
• Gediminas Šimkus, the chair of the Bank of Lithuania, called for "bold actions," suggesting that 75 basis point hikes should be on the table, depending on the data.
• Edward Scicluna, governor of the Central Bank of Malta, also said there is "still some way to go" for the ECB in its grapple with price increases.