EUR outlook ahead of ECB meeting
The financial environment reflects risk aversion, after the collapse of two US banks and the risk of collapse of the European bank Credit Suisse, which have fueled fears of contagion in the industry.
In reaction there was a sharp fall in European bank shares on Wednesday. The Euro Stoxx Banks Index, which has been in the spotlight recently as investors worried about the health of lenders' bond holdings following the SVB collapse last week, has fallen nearly 5%.
Shares of banks Société Générale de France and BNP Paribas each fell more than 10%. ING Groep in the Netherlands, Spain's Banco Santander as well as German lenders Deutsche Bank and Commerzbank posted losses of more than 6%.
Meanwhile, shares of Credit Suisse Group AG lost more than two-tenths of their value and hit a new all-time low after top shareholder Saudi National Bank ruled out offering further assistance. The company had said earlier this week that its auditor had found "material weaknesses" in its financial reporting controls.
This whole environment reveals a structural weakness in the financial system that will not be solved by raising interest rates. Hence, the next meeting of the European Central Bank (ECB) on Thursday, March 16, will have the mission of calming the market, by avoiding raising rates the 50 points that the president of the bank, Christine Lagarde, has announced in previous weeks, but a moderate increase of 25 points and a total cessation of the restrictive policy (rate increases) is not expected immediately, since this would trigger panic in the market by confirming an emergency situation that warrants early action.
In this way, it is expected that the interest rate in Europe will go from 3% to 3.25%, to leave it parked at that level at least until the summer. This implies that central banks will now have to weigh whether to focus on controlling inflation or stopping a generalized financial crisis.
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