By Scott Kanowsky
Investing.com -- European Central Bank president Christine Lagarde defended the ECB's decision last week to raise interest rates but refrain from making commitments to future hikes, calling it a "proportionate" response to both elevated inflation and recent turmoil in the banking sector.
In a testimony to the European Parliament's Committee on Economic and Monetary Affairs, Lagarde said the cut off date for projections used to justify the 50-basis-point increase in borrowing costs came before the market volatility sparked by the downfall of U.S. lenders Silicon Valley Bank and Signature Bank.
"As a result of that, and given the inflation which is too high and has been for too long and our determination to bring it down, we decided to deliver on our interest rate hikes," Lagarde said.
"But we did not repeat exactly the same commitment that we had before, where we indicated our determination to continue raising interest rates in a steady manner [...] Because in the face of the uncertainty that we had - that is, not updated projection, no calibrated impact of the financial tensions that we had observed on the markets - it was clearly more proportionate and more sensible to not make further commitment."
Meanwhile, Lagarde backed the resilience of the Eurozone's banking sector, claiming it has "strong capital and liquidity positions." But she promised that the ECB will provide "liquidity support" to banks in the currency area if needed, reiterating a prior statement made on Sunday in the wake of a merger between troubled bank Credit Suisse Group AG (SIX:CSGN) and its larger rival UBS Group AG (SIX:UBSG).
She also praised authorities in Switzerland, which is outside of both the Eurozone and the European Union, for brokering a marriage between UBS and Credit Suisse. Lagarde said the move helped restore orderly market conditions and ensure financial stability.