Isabel Schnabel, an ECB board member, urges more interest rate increases
The European Central Bank must move to increase interest rates further, according to Isabel Schnabel, a member of the bank’s board of economists. Schnabel said that despite a general slowdown in price rise, the euro region has not yet seen widespread deflation. Due to worries over persistently strong underlying price rise, the ECB has already increased interest rates by 3 percentage points since July, with a second significant hike expected for March.
Broad Deflation Is Still Not Visible in the Euro Area
In a recent Twitter Q&A, Schnabel stated that “broad disinflation has not started in the euro region.” Rates must reach a suitably restrictive level, and they will stay high until there is solid proof that underlying inflation is returning to the target level. Rate increases may hamper economic development, according to Schnabel, but a recession is not certain and there is still a chance for a “soft landing.”
Continued worries over stagnant price growth
Despite the ECB’s efforts, underlying price growth is persistently high and has raised concerns that it may continue to rise over the ECB’s 2% objective. The quick increase in nominal salaries may be a contributing factor in this. The prospect of balance sheet run-off has probably already contributed to increased bond rates in the euro area, according to Schnabel, who recognized the possible economic effects of the rate rises.
The ECB will permit a debt maturity of 15 billion euros.
According to Schnabel, the market impact of the ECB’s balance sheet draw down should be “essentially symmetric” to its previous asset purchases. The ECB will initially permit debt worth 15 billion euros to mature. The bank’s principal objective is to maintain strong evidence that underlying inflation will reach its target in a timely and sustainable way.