Shares hit as ECB set to keep rates 'higher for longer'
President of the European Central Bank Christine Lagarde previously said further hikes for the eurozone could not be ruled out.
European shares fell sharply in a broad-based selloff, pressured by rising bond yields as major central banks across the world hinted at keeping borrowing costs elevated for longer.
The pan-European Stoxx index closed lower by more than 1%, with travel and leisure stocks and technology shares fallling more than most. In Ireland, shares in AIB and Bank of Ireland ended 3.3% and 2.5% higher, while Ryanair fell 1.5%.
The declines came despite European Central Bank governing council member Klaas Knot said the central bank will most likely keep interest rates stable at its next policy meeting.
Eurozone bond yields rose to multiple-month highs after the US Federal Reserve and the Bank of England kept rates unchanged but flagged more hikes could come as the central banks continue to worry about inflation.
Central banks for the world's biggest economies have served notice that they will keep interest rates as high as needed to tame inflation, even as two years of unprecedented global policy tightening reaches a peak.
The so-called "higher for longer" mantra is now the official stance of the US Fed, the ECB, and the Bank of England, as well as being echoed by monetary policy-makers from Oslo to Tapei.
For central bankers first chastised for being late to spot the post-pandemic surge in inflation and then cautioned for overdoing their response, the prize of returning the global economy to stable prices without recession is now within sight.
Their task is to convince financial markets not to undo their work with bets on early rate cuts, and to watch for new risks such as rising oil prices - while hoping governments help with budgets that do not further fuel inflation.
"We will need to keep interest rates high enough for long enough to ensure that we get the job done," Bank of England governor Andrew Bailey said after UK policymakers narrowly decided to hold its main interest rate at 5.25%.
Fed policymakers had a similar message earlier this week. The Fed held its benchmark rate at 5.25% to 5.5%, but stressed they would remain tough in an inflation fight they now see lasting into 2026.
ECB president Christine Lagarde was adamant last week that further hikes for the eurozone could not be ruled out. Even the Swiss National Bank held out the prospect of further interest rate hikes despite inflation at a comfortable 1.6%.
Significant outliers include the Bank of Japan, widely expected to stick to negative rates at a meeting, and the People's Bank of China, where recent better economic prospects allowed it to keep rates on hold.
"We have seen a lot of central banks entering in a pause, however, there is still modest upside risks related to the inflation behaviour over the next months, but I would say that globally, it's still positive for equities," said Patrice Gautry, chief economist at Union Bancaire Privée in Geneva, Switzerland.
"What was less positive was that these pauses came with the mantra of key rates remaining higher for longer, that is to say that central banks are not ready to cut very rapidly."
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