Curbing financial panic or taming inflation, the ECB’s dilemma
DECRYPTION – Until now, the European Central Bank had to juggle between the fight against inflation and the risk of weakening growth. It must now add financial stability to the equation.
The twenty-five members of the Governing Council of the European Central Bank (ECB) met on Wednesday in Frankfurt in an atmosphere of great tension. The press conference of its president, Christine Lagarde, at the end of this Board of Governors, Thursday afternoon, will be a perilous exercise. The markets fear a contagion in Europe of the crisis which hit at the beginning of the week the Silicon Valley Bank (SVB) and two other American establishments, then Swiss credit, Wednesday. Laminated on the stock market on Wednesday, the banking sector bears the brunt of the panic.
Until now, the ECB had to juggle between the fight against inflation and the risk of weakening growth. It must now add financial stability to the equation. If inflation is its official mandate in the medium to long term, avoiding an immediate financial crisis may become the emergency.
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Hence a dilemma on his strategy. After raising its key rate from -0.5% to 2.5% in seven months, the continued…