Euro Area Banks Not as Vulnerable as US Peers to Rate Moves, Lane Says

6 April 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Euro area banks are less sensitive to rate hikes than regional banks in the US and Credit Suisse, European Central Bank Governing Council member Philip Lane said on Thursday.

In an interview with Cyprus News Agency, Lane, who is the ECB’s chief economist, refused to make any predictions regarding the ECB’s next policy moves and said that the Governing Council would only make a decision on whether to hike on the day of the central bank’s next monetary policy meeting.

‘[T]he euro area banking system is strong, it’s stable, and it is not as vulnerable as [regional banks in the United States and Credit Suisse] to changes in interest rates, to changes in the economy’, he said.

Regarding the monetary policy outlook, he doubled down on the ECB’s data-dependent, meeting-by-meeting approach, saying that ‘rather than trying to predict now what the decision will be, our attention will be on the incoming data. We will analyse these until the day of the meeting and make a decision then.’

The ‘best way to capture’ the ECB’s approach was by looking at the March projections, he said: ‘If, by the time of the May meeting, those projections remain on track, then a rate hike will be appropriate.’

The ECB’s ‘formula’ was that ‘if the baseline we developed before the banking stress holds up, it will be appropriate to have a further increase in May’, he said.

‘[I]n these weeks we have to see whether the incoming data support that projection from March’, he said. ‘If they create more inflation concerns, that will move us in one direction; if they create less inflation concerns, that will move us in another direction.’