MNI BRIEF: ECB Should Slow Rate Hikes After SVB - Bini Smaghi
Former ECB Executive Board member warns of repeating 2011 euro debt crisis mistakes, urges caution.
Contagion risk from the collapse of SVB in America means policymakers should temporarily shelve plans to raise key interest rates by 50bps, in favour of a 25bps hike, former ECB Executive Board member Lorenzo Bini Smaghi said in an interview Wednesday, citing fears of repeating mistakes in 2011, when the central bank pressed ahead with hikes despite the emerging debt crisis. (see MNI SOURCES: ECB Clings To 50Bp Hike Plan Amid Market Turmoil).
The financial contagion is equivalent to some form of tightening of monetary conditions and sticking to the 50 points increase, as if nothing happened, means implementing a tougher stance than previously thought, he told the Boersen Zeitung. This could be risky and add further instability," the current Chairman of of French banking giant Societe Generale noted.
“Postponing for one month or doing only 25 points would not be a problem if well explained. The ECB should avoid repeating the 2011 mistake, when it continued hiking rates without taking into accounts the growing contagion from the Greek debt restructuring. This precipitated the crisis and led to a policy reversal after a few months,” Bini Smaghi explained