The ECB raised interest rates again despite market turmoil over bank stocks, but bank chief Christine Lagarde said policymakers were watching events on financial markets very closely and stood ready to change course
"I think that the banking sector is currently in a much, much stronger position than where it was back in 2008," ECB President Christine Lagarde told a news conference, citing improved capital and liquidity positions since the financial crisis of 15 years ago.
"We know that if our baseline were to persist when the uncertainty reduces, then we have a lot more ground to cover," Lagarde said, while noting it was impossible to determine the future path of rates amid "completely elevated" uncertainty stemming from the market ructions. The euro and bond yields edged up after the move, with bank shares hitting two-month lows before partially recovering. After days of turmoil in markets, financial investors had seen a 50% chance of a smaller, 25 basis point move by the ECB and dialled down expectations for future moves.Signage is seen outside the European Central Bank building, in Frankfurt, Germany, July 21, 2022.
The key worry for the ECB is that monetary policy works via the banking system, and a full blown financial crisis would make its policy ineffective.
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