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ECB’s Lagarde: Banking Turmoil May Lead to Future Rate Increases

by Lucas Garcia
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Christine Lagarde, the President of the European Central Bank, said they don’t know if they’ll raise interest rates anymore. This is because lots of changes in banking recently have made it so it’s hard to predict what will happen in the future. What this means is that the bank will keep an eye on data and whether inflation (the prices of stuff getting higher) will go down before they decide on whether or not to raise interest rates.

The person said that right now, it is really important to pay attention to data because we don’t know whether or not the rate should be raised. Recently, financial market pressures have made the situation even more uncertain and blurry.

The European Central Bank (ECB) had recently changed their plan about increasing interest rates as a way to reduce or stop inflation. This shift in policy was unsettling for many financial markets, especially after the Silicon Valley Bank in the United States lost money. People are worried this could mean more banks could suffer losses if central banks around the world continue to raise their interest rates so quickly.

Recently, worries about banks went up because Swiss bank Credit Suisse had some difficulties – they were rescued only after another bank, UBS, took them over. This was a problem also before interest rates started going up.

The European Central Bank (ECB) eventually raised their interest rate by half a percent last Thursday, which was more than what was expected in January. The ECB is trying to keep consumer prices stable in the 20 countries that use the euro currency and those prices increased 8.5% from last year.

When borrowing (such as buying something or expanding a business) becomes more expensive, people buy and do less, which helps to stop inflation. But with recent banking problems, banks may not want to lend out very much money – even if the Federal Reserve wants them to – which can make it difficult for people to borrow like normal. On Wednesday, the Federal Reserve was supposed to raise rates (that would make borrowing more expensive again), but they are now thinking of either leaving it the same or only raising it a little bit.

The European Central Bank (ECB) chief, Lagarde, said there doesn’t need to be a trade-off between striving for financial stability and keeping inflation under control. She thinks ECB has special ways to take care of each task separately – interest rates for managing prices, and support for banks for any potential dangers.

Fortunately Europe had enough natural gas this winter, so we didn’t run out even though Russia stopped most of the supply due to their war with Ukraine.

Wednesday was a good day for Germany. The German Council of Economic Experts said their projection for the country is that it will grow, instead of shrink, by 0.2%. This is different from what they predicted back in November.

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