ECB policy uncertainty will persist

Significance

Most observers had expected either a smaller increase or no increase in light of evidence that rapid interest rate rises were fueling instability in financial markets. The move comes against the backdrop of widening division in the ECB over monetary policy.

Impacts

• The persistence of core inflation will embolden those in the governing council calling for quicker rate rises.
• Euro-area banks are less vulnerable to the risks which led to the collapse of collapse of Silicon Valley Bank in March.
• Interest rate rises will disproportionately affect households in southern Europe.