The European Central Bank on Thursday pressed ahead with its plan to raise interest rates by 50 basis points, or half a percent, despite a spat over the banking sector, warning that “inflation is projected to remain very high for a very long time.” At the same time, the ECB said future decisions would be based on economic and financial data, signaling an abandonment of a meeting-by-meeting approach and a policy known as forward guidance aimed at massaging market expectations around future moves. The ECB said last month it planned to raise rates by 50 basis points at Thursday’s meeting, but that was thrown into doubt after pressure on troubled Swiss lender Credit Suisse raised concerns about eurozone bank exposure. Shares of Credit Suisse were flat after the bank said it would receive a $54 billion loan from the Swiss National Bank early Thursday. The ECB said future moves would depend on economic and financial data given the “elevated level of uncertainty”. The ECB said it is closely monitoring current market tensions and “stands ready to respond as necessary to maintain price stability and financial stability in the euro area.” The ECB said the eurozone banking sector is “resilient with strong capital and liquidity conditions.” “The decision to give no new forward guidance on interest rates could be seen as foolish, given that many policymakers have said in recent weeks that they expect more rate hikes in May and beyond,” said deputy chief Jack Allen-Reynolds. ” Capital Economics’ Eurozone Economist, in a note. “But the absence of forward guidance probably reflects growing divisions on the Governing Council.” The ECB faced a dilemma at Thursday’s meeting, analysts said. Failure to hike after last month’s pledge would have dented the ECB’s credibility, but policymakers are also unwilling to discourage calls for a small hike or no hike at all, Fawad Razakzada, an analyst at Forex.com and CitiIndex, said in a note. . With no forward guidance, it provided “the biggest rate hike you’ve seen under these circumstances.”
