© Reuters. FILE PHOTO: Isabel Schnabel, member of Germany’s advisory board of economics attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski//File Photo
LONDON (Reuters) – European Central Bank board member Isabel Schnabel pushed back on Thursday against calls from many of her peers to extend the ECB’s low interest rates, saying it could hamper efforts to lower inflation.
The ECB, which has been determined to tackle rising rates, has raised rates by 75 basis points at its past two meetings, but several central bank governors, including some who normally favor higher rates, have opened the door to a slower rate hike.
However, Schnabel, who speaks strongly in the hawkish camp, said this was premature and could prove ineffective.
“The data coming in so far suggests that the room for further reductions in interest rates remains limited, even as we approach the ‘money’ estimate,” he said at an event in London.
“The high level of uncertainty surrounding such estimates means that they cannot serve as a guide to the appropriate pace of interest rate changes. Instead, policy must remain data-driven.”
He added that expectations of a more dovish path are also working against the ECB, given how far real policy is from what is needed to bring inflation back to 2%.
Earlier this week, Austria’s Robert Holzmann, the ECB’s most vocal bull, supported a 75-point increase, but Klaas Knot of the Netherlands and Germany’s Joachim Nagel appear poised for a 50-point hike, as expected. and financial markets.
Speaking in Milan ahead of Schnabel’s arrival, ECB vice president Luis de Guindos said the move would depend on developments but said he did not expect eurozone inflation to rise sharply. It hit 10.6% in October.
“On the head (inflation)… I think we are there according to the tip, maybe one point up or down, it will be around, but I think that in the first half of next year we will see a decrease,” he told the event.
Policymakers have been insisting that rates should increase but cannot fully agree on where to go or at what pace, the minutes of their last meeting showed on Thursday.
“Discussions were held on the use of concepts such as ‘unlimited funds’ or the ‘terminal rate’ associated with inflation returning to the central level, with different views on the connection between these measures and the expected events or on their assumptions. fixed assets,” the ECB said. in the account.
The governor of the Dutch Knot expressed doubts about the market expectations of the ECB’s deposit rate, currently at 1.5%, to a peak of 3%.
“The expectations of the market are that we will raise prices to 3% in the first half of next year, and they will decrease from the second half of 2023. To be honest, I am not sure about that,” Knot told a hearing at the Dutch parliament.