Despite the tensions generated in the last two weeks in some North American (Silicon Valley, Signature or First Republic) and European (Credit Suisse) banks, the central banks have continued the path outlined and planned to combat inflation, their main obsession in this context. The monetary authorities of the large economies (with the exception of Japan) have chosen to raise interest rates this March, without weighing in the least in their decision a possible banking crisis that could affect their economies. In just one year, the price of money has risen like never before from the all-time low of 0% to around 3.5% in the euro zone or 5% in the US.
The last two organizations that have insisted on raising the official rates were yesterday the Bank of England and the Bank of Switzerland. In the first case, the United Kingdom has raised its rate by 0.25 points to 4.25%, its highest level since the autumn of 2008, when the great recession began with the fall of Lehman Brothers. It has done so – they argue – in response to the escalation of inflation and after the decision announced yesterday by the United States Federal Reserve (FED), which has served as a drag on London.
In this case, it has indeed reduced the pace of its interest rate increases coinciding with the appearance of turbulence in the financial markets. But the Bank of England insists it cannot stop this pace after the country’s inflation picked up in February to 10.4% from 10.1% the previous month. “Monetary policy will ensure that inflation returns to the 2% target in a sustainable manner in the medium term,” the English monetary institution has stressed.
It is exactly the same argument used by those responsible for the Swiss National Bank, which has raised the reference interest rate by half a percentage point, which will become 1.50%, without the recent events led by one of its flagships, Credit Suisse, have halted the fourth consecutive increase in the price of money.
Warnings from Sabadell and Bankinter
Just a week after the near-banking crisis hit Silicon Valley, and after a weekend in which negotiations rushed to rescue Credit Suisse, the market has already found out where the central bankers stand. in his dichotomy between inflation versus financial uncertainty. And he remains unconvinced that the tensions in the sector have dissipated. Investors see that the change in monetary policy does not correspond to a reduction in inflationary pressures, but to an attempt to prevent the financial crisis from escalating. In fact, the Ibex-35 dropped 0.4% yesterday and left the level of 9,000 points. The big decreases came from banks with declines of 3.5% in CaixaBank, 3.35% in Sabadell; almost 3% from Bankinter, 2.6% from BBVA or 1.9% from Santander.
These turbulences have coincided with the celebration of the shareholders’ meeting of Banco Sabadell, one of the entities most impacted at the time on the Stock Market by uncertainty. The president of the group, Josep Oliu, has warned that the adaptation to this new economic environment “has caused and may cause episodes of market instability” such as those that occurred in the last week due to the bankruptcy of Silicon Valley Bank and the crisis of Credit Swiss.
In addition, he regretted that the bank tax “will be detrimental to the greatest profitability for the shareholder.” In his opinion, the bank “must absorb the extraordinary contribution” of this rate. In addition, he recalled that the monetary policy of the last ten years has caused returns to have “insufficient levels to be able to adequately remunerate the invested capital.”
In the same sense, the CEO of Bankinter, María Dolores Dancausa, has spoken, asking herself during her speech at the bank’s meeting if the temporary tax is justified in view of the market situation. She has also raised the idea that this tax may have deprived the entities of more resources to face any situation of tension.
And this despite the fact that there are more and more signs that companies’ costs are relaxing: the price of energy continues to fall, that of fuels too, and that of raw materials moderates. However, the monetary organizations consider that it is necessary to continue raising the price of money to try to cool the economy down to the equilibrium point of stabilizing prices but without significantly damaging growth.
The International Monetary Fund (IMF) also endorses this position. The IMF’s head of communication, Julie Kozack, considers that “rapid actions have been taken” although she also pointed out that “there continues to be uncertainty and more attention must be paid.” The institution points out that they continue to “monitor events.” And she admitted that “detailed analysis and global economic outlook will include these developments in our reports.”
In this context, the Heads of State and Government of the European Union meet in Brussels to this day. They are doing it to take advantage of the need to finalize the Banking and Capital Union. Although until now the EU banking authorities have insisted that there is no risk of contagion for European banks, given their resilience and the strict supervisory measures to which they are subject.
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