ECB presses on with rate hike, Credit Suisse thrown lifeline

The European Central Bank raised interest rates by 50 basis points yesterday as promised, ignoring financial market chaos and calls by investors to dial back policy tightening at least until sentiment stabilises.

The ECB has been raising rates at its fastest pace on record to curb inflation, but a rout in global markets since the collapse of Silicon Valley Bank in the United States last week had threatened to upend those plans at the last moment

In line with its often-repeated guidance, the central bank for the 20 countries that share the euro lifted its deposit rate to 3 percent, the highest level since late 2008, as inflation is seen overshooting its 2 percent target through 2025.

European stock markets were lower after the news, with the Stoxx 600 index moving from a narrow gain to a 0.15 percent loss after the announcement.

Before the hike, European stocks had edged higher and Credit Suisse had rallied 40 percent after the embattled Swiss lender arranged to borrow as much as 50 billion francs (HK$422.5 billion) from a Swiss National Bank liquidity facility.

The lender is also repurchasing up to three billion francs of US dollar- and euro-denominated debt. It has not yet needed to use the facility for liquidity, a source said.

Credit Suisse is the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis and its troubles have raised serious doubts over whether central banks will be able to sustain their fight against inflation with aggressive interest rate hikes.

That followed assurances from Swiss authorities on Wednesday that Credit Suisse met "the capital and liquidity requirements imposed on systemically important banks" and that it could access central bank liquidity if needed.

Worries about Credit Suisse's financial health had roiled global markets over the past 24 hours, alarmed regulators across Europe and the US, and prompted some firms to reassess their exposure to the bank.

Analysts at JP Morgan say that a takeover - with rival UBS Group a probable option for this - is the most likely scenario for Credit Suisse, which could be followed by a listing or spinoff of the Swiss bank part of the lender, worth 10 billion Swiss francs, given the market concentration between the two.

Rising economic uncertainty has seen traders bring forward forecasts for the peak in Federal Reserve interest rates, and also the start of easing.

The expected peak for the Fed policy rate - which exceeded 5.5 percent less than a week ago - slid to about 4.85 percent, pricing in an increase in May, with a quarter-point hike at next week's policy meeting deemed a coin toss.