Bank of England confirms safeguard against inflation

The Bank of England issued a statement to reassure UK bank clients and financial markets after the purchase of crisis-hit Credit Suisse by competitor UBS, which was allowed by the Swiss government.

After the £2.5 billion settlement was revealed on Sunday, the Bank of England said: “We appreciate the complete set of initiatives laid out by the Swiss authorities today in order to safeguard financial stability.

“We have been communicating extensively with overseas peers throughout the preparations for today’s announcements and will continue to assist their implementation.

“The financial system in the United Kingdom is adequately capitalized and financed, and it is secure and sound.”

Deposits in UK banks are safeguarded by the Financial Services Compensation Plan, which is guaranteed by the government.

The Bank of England has also announced coordinated measures with the central banks of the United States, Canada, Japan, Switzerland, and the eurozone to promote “liquidity” in foreign markets by improving commercial banks’ access to US dollars.

This will include operating daily, rather than weekly, dollar “swap lines” between the banks. The measures, put in place to calm markets after recent upheaval in the banking sector, will last at least through the end of April.

“The network of swap lines among these central banks is a set of available standing facilities and serves as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” the Bank of England said.

After a rocky week in the global banking industry, the European Central Bank (ECB) has hiked interest rates by half a percentage point to combat inflation, despite worries that such a move might deepen a financial crisis, says Andrew Michael.

The European Central Bank said today that it will raise the interest rate on its main refinancing operations to 3.5% and the deposit rate to 3%, in keeping with the advice offered at its most recent monetary policy decision last month.

But, since then, the banking industry has been rocked by worries of contagion after the failure of the tech-focused Silicon Valley Bank in the United States.

Moreover, the Swiss National Bank, the Swiss central bank, granted £45 billion in emergency financing to embattled global banking behemoth Credit Suisse today in an attempt to avert a worldwide financial disaster.

In light of this, critics wondered if the ECB would stick to its program of half-point rate rises, or halt or boost borrowing rates by a lower amount.

Defending its decision, the ECB – which is required to manage inflation over the long-term at 2% – said increasing prices throughout the eurozone remained the bloc’s greatest danger, adding that “inflation is anticipated to stay too high for too long”.

The ECB said it was “watching recent market tensions carefully and remains ready to react as required to safeguard price stability and financial stability in the euro region”.

The US Federal Reserve and the Bank of England will announce interest rate decisions next week.

“The ECB has taken a look at what is going on in the banking industry and has basically stated it is satisfied with what is occurring by hiking rates by half a percentage point,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

“Credit Suisse looks to be teetering on the brink, and the repercussions its collapse might have on the European financial system are substantial. Yet, the ECB continues to see inflation as the greater concern to be addressed. And this may be a positive indicator, since it is hoped that Credit Suisse and Silicon Valley Bank are unique events with their own set of circumstances.”

“The ECB has been chastised for being behind the curve in the global battle against inflation, being the latest of the three major central banks to begin its raising cycle,” said David Goebel, investment strategist at Evelyn Partners. Yet, recent advancements may change this disadvantage into an advantage.

“Rates in the eurozone are not as restrictive as they are in the United States, and given the lag effect of raising rates, this might put Europe in a stronger position if the global economy softens more.”

The Bank of England issued a statement to reassure UK bank clients and financial markets after the purchase of crisis-hit Credit Suisse by competitor UBS, which was allowed by the Swiss government.

After the £2.5 billion settlement was revealed on Sunday, the Bank of England said: “We appreciate the complete set of initiatives laid out by the Swiss authorities today in order to safeguard financial stability.

“We have been communicating extensively with overseas peers throughout the preparations for today’s announcements and will continue to assist their implementation.

“The financial system in the United Kingdom is adequately capitalized and financed, and it is secure and sound.”

Deposits in UK banks are safeguarded by the Financial Services Compensation Plan, which is guaranteed by the government.

The Bank of England has also announced coordinated measures with the central banks of the United States, Canada, Japan, Switzerland, and the eurozone to promote “liquidity” in foreign markets by improving commercial banks’ access to US dollars.

This will include operating daily, rather than weekly, dollar “swap lines” between the banks. The measures, put in place to calm markets after recent upheaval in the banking sector, will last at least through the end of April.

“The network of swap lines among these central banks is a set of available standing facilities and serves as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” the Bank of England said.

After a rocky week in the global banking industry, the European Central Bank (ECB) has hiked interest rates by half a percentage point to combat inflation, despite worries that such a move might deepen a financial crisis, says Andrew Michael.

The European Central Bank said today that it will raise the interest rate on its main refinancing operations to 3.5% and the deposit rate to 3%, in keeping with the advice offered at its most recent monetary policy decision last month.

But, since then, the banking industry has been rocked by worries of contagion after the failure of the tech-focused Silicon Valley Bank in the United States.

Moreover, the Swiss National Bank, the Swiss central bank, granted £45 billion in emergency financing to embattled global banking behemoth Credit Suisse today in an attempt to avert a worldwide financial disaster.

In light of this, critics wondered if the ECB would stick to its program of half-point rate rises, or halt or boost borrowing rates by a lower amount.

Defending its decision, the ECB – which is required to manage inflation over the long-term at 2% – said increasing prices throughout the eurozone remained the bloc’s greatest danger, adding that “inflation is anticipated to stay too high for too long”.

The ECB said it was “watching recent market tensions carefully and remains ready to react as required to safeguard price stability and financial stability in the euro region”.

The US Federal Reserve and the Bank of England will announce interest rate decisions next week.

“The ECB has taken a look at what is going on in the banking industry and has basically stated it is satisfied with what is occurring by hiking rates by half a percentage point,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

“Credit Suisse looks to be teetering on the brink, and the repercussions its collapse might have on the European financial system are substantial. Yet, the ECB continues to see inflation as the greater concern to be addressed. And this may be a positive indicator, since it is hoped that Credit Suisse and Silicon Valley Bank are unique events with their own set of circumstances.”

“The ECB has been chastised for being behind the curve in the global battle against inflation, being the latest of the three major central banks to begin its raising cycle,” said David Goebel, investment strategist at Evelyn Partners. Yet, recent advancements may change this disadvantage into an advantage.

“Rates in the eurozone are not as restrictive as they are in the United States, and given the lag effect of raising rates, this might put Europe in a stronger position if the global economy softens more.”