The European Central Bank (ECB) has a raised interest rates by a further 50 basis as expected despite volatility in the banking sector following the collapse of Silicon Valley Bank (SVB).

From next Wednesday (22 March), the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.50%, 3.75% and 3.00%, respectively.

The eurozone financial regulator said the "elevated level of uncertainty" being experienced by banks at present reinforced the importance of the data-dependent approach to policy decisions being taken by its governing council.

"The governing council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area," the ECB said.

"The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy."

In Association with

The ECB added that the projections underpinning the latest rate hike were finalised before the recent market tensions, which imply additional uncertainty around the baseline assessments of inflation and growth.

Credit Suisse received a $54bn lifeline from the Swiss central bank overnight, calming markets after its largest investor said it could not provide additional financial assistance.

The ECB has a medium-term target for inflation of 2%, and has forecast average inflation of 5.2% for 2023, 2.9% for 2024, and 2.1% in 2025. Baseline projections for growth this year have been revised up to 1% in 2023.

Annual inflation measured 8% in Ireland and 8.6% in the eurozone in February, with consumer prices in Ireland having risen 1.4% last month.

The interest rate increase was presaged by the ECB when it raised rates in February, and again by chief economist Philip Lane when he spoke at Trinity College Dublin last week.

The ECB has raised rates from 0% to 3.5% over the past eight months, bringing up mortgage rates across the continent as retail banks have passed the increases onto consumers.

In reaction to the latest increase, Bank of Ireland said its tracker mortgage rates would increase by 0.5% from 5 April, and that it continues to keep all rates under ongoing review.

Photo: Christine Lagarde, president of the ECB. (Pic: Alex Kraus/Bloomberg via Getty Images)