Credit Suisse rescue gave ECB confidence to hike rates – sources

FRANKFURT (Reuters) -European Central Bank policymakers only agreed another major increase in interest rates on Thursday after Credit Suisse secured a lifeline and markets calmed, four sources familiar with the matter told Reuters.

Policymakers nervously pored over their phones and received regular market updates from ECB staff on the first day of their meeting on Wednesday, the sources said, as concerns about Credit Suisse dragged down shares in banks across the euro area and stoked fears about a new financial crisis.

The sudden rout had thrown the ECB’s well-defined plan for another 50 basis point rate increase into turmoil and put a question mark over the outlook for the economy and inflation, the sources said.

But the Swiss National Bank’s decision to bankroll Credit Suisse with a 50 billion Swiss franc ($54 billion) loan overnight helped steady financial markets and gave most policymakers the confidence to go ahead with the planned rate increase, the sources said.

Some did want to leave rates unchanged on Thursday and to wait for financial markets to settle down, rather than raise borrowing costs for a sixth time and risk making matters worse, the sources added.

An ECB spokesperson declined to comment.

Investors had been doubting the ECB’s resolve to go through with a half-point hike it flagged in February, with some analysts predicting a 25 basis points move.

But the sources said this was never discussed, with the debate focussing on a 50 basis point move or none at all.

($1 = 0.9289 Swiss francs)

(Reporting by Francesco Canepa, Balazs Koranyi and Frank Siebelt; Editing by Toby Chopra and Mark Potter)