The fight against "inflationary pressures" has taken precedence over shocks in the banking sector: the Bank of England (BoE) also raised its key rate on Thursday, imitating the Fed, the ECB and central banks in Switzerland and Norway. The BoE tightened its rate for the eleventh consecutive time, by 0.25 points, a magnitude similar to that of the all-powerful US Federal Reserve (Fed) the day before. The Swiss National Bank (SNB) followed the path of the European Central Bank (ECB) earlier in the day last week by raising its rate by 0.50 percentage points. In Norway, the central bank chose 25 basis points. The BoE's key interest rate now stands at 4.25%, the highest since late 2008.

Already on Wednesday evening, the Fed had tried with a modest increase to spare the goat and the cabbage, between the financial turbulence of recent days and a persistent price waltz. On both sides of the Atlantic, the number one target for central banks remains to achieve inflation at 2%, which is still far from being the case. But the bankruptcy of California's Silicon Valley Bank (SVB), and then two other US regional banks, showed how weakened the banking sector had been by the unbridled monetary tightening of recent months.

'New risks'

For now, the economic crisis seems to worry more in the United States than in Europe. The Fed is now hinting that the end of its cycle of monetary tightening is approaching: it is now adopting the conditional to evoke that "a future tightening of monetary policy may be necessary" instead of an affirmative mode. It also warned at the end of its meeting that the banks' recent setbacks were "likely (...) to weigh on economic activity, hiring and inflation", stressing that "the magnitude of these effects is uncertain".

The risk is not limited in the United States, as evidenced by the precipitous takeover of Credit Suisse by UBS: ECB President Christine Lagarde acknowledged on Wednesday that tensions in the banking sector were creating "new risks" for the economy. And in the United Kingdom, "there are still channels through which British economic conditions could be affected," especially in the event of "tensions on non-British banks," the central bank warned Wednesday in a letter to Parliament.



But the BoE has not lowered its growth forecasts, and is even counting on a small boost from fiscal measures announced earlier in the month. With inflation rebounding in February and remaining above 10%, and an economy recovering a bit of color, investors are betting that the BoE will raise rates one last time at its next meeting.

Some economists, however, believe that the BoE could stop raising rates, such as Daniel Mahoney of Handelsbanken: given that expectations of Fed rate hikes have lowered in recent weeks, the British monetary policy committee "no longer needs to worry about the depreciation of the pound against the dollar", an inflationary factor. Believe.

Swiss and Norwegian increases

In Switzerland, where the SNB rate remains relatively low at 1.5%, central bank chief Thomas Jordan said it was "not excluded that further hikes are necessary to ensure price stability". Inflation remains more moderate than in many European countries, at 3.4% year-on-year, but has accelerated in recent months.

"The bank clearly wanted to turn the page on the Credit Suisse saga," said Adrian Prettejohn, an analyst at Capital Economics, noting that the SNB has raised its growth forecast for 2023 and believes that the bank will raise its rate again once this year.

And in Norway, the central bank raised its rate to 3%, while inflation, although it slowed in February, remains at 6.3%. The dollar was down against the pound, the Swiss franc and the Norwegian krone, but the movement remained moderate because these central bank decisions had been anticipated.

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