(Bloomberg) — The European Central Bank must do more to bring inflation back to the 2% target, even as it waits to see the full effect of the action it’s taken to date, according to Executive Board member Isabel Schnabel.
(Bloomberg) — The European Central Bank must do more to bring inflation back to the 2% target, even as it waits to see the full effect of the action it’s taken to date, according to Executive Board member Isabel Schnabel.
Smaller interest-rate increases are appropriate following the 375 basis points of hikes enacted since last summer, Schnabel said Tuesday.
Quarter-point steps will still allow borrowing costs to reach sufficiently restrictive levels, she said.
“Inflation, especially core inflation, remains far too high,” Schnabel said in Frankfurt.
“We’ll raise interest rates with full determination until there are signs that core inflation is also falling on a sustained basis.”
The remarks come less than a week after the ECB slowed the pace of its unprecedented bout of rate hikes following a moderation in its preferred measure of price growth.
With the Federal Reserve opening the door to a pause in its own period of monetary tightening, officials in Europe have underlined in recent days that they’re not done yet.
Schnabel said ECB President Christine Lagarde “has made it absolutely clear that the slowdown in rate hikes is not an indication that we’ll stop raising rates any time soon.”
The German official has been among the ECB’s most hawkish voices, pushing for tougher wording in March’s statement and refusing to rule out a 50 basis-point step in the run-up to the last decision, on May 4, that delivered a move of half that size.
Bundesbank President Joachim Nagel could have envisaged a bigger hike at that meeting, according to an interview with German newspaper FAZ published earlier Tuesday.
Latvia’s Martins Kazaks told Bloomberg on Monday that the tightening process may not conclude in July, when most economists see it ending with a deposit rate of 3.75%, up from 3.25% now.
ECB officials have said borrowing costs should remain at their peak for a prolonged period, once that point has been reached — an outlook some investors are skeptical of.
The rate cuts that some in the market still expect for this year “are highly unlikely for the foreseeable future,” Schnabel said.
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