European Central Bank Executive Board member Isabel Schnabel said elevated uncertainty makes it hard to predict the outcome when officials next set interest rates.
(Bloomberg) — European Central Bank Executive Board member Isabel Schnabel said elevated uncertainty makes it hard to predict the outcome when officials next set interest rates.
“I can’t tell you what we’ll decide at the next meeting, and especially at the following meetings,” Schnabel said Wednesday at the ZEW research institute in Mannheim, Germany.
“With the disturbances in the banking sector, the situation has become even more complex,” she said. “It’s even more important that we look at all the data we’ll get. It’s important whether the uncertainty in the banking sector will have an additional impact on lending.”
ECB officials are being much less definitive about their predictions for the path for borrowing costs — as they await concrete data on the damage for the 20-nation euro zone from banking collapses in the US and Switzerland.
The choice on May 4 is thought to be between a quarter- or a half-point move. Several policymakers say the financial-sector fallout will be limited and inflation is too high, refusing to rule out the bigger of the two potential steps.
Goldman Sachs this week revised its prediction for the peak of the monetary-tightening cycle back up to 3.75%, having cut it amid the banking stress.
Separately, Schnabel said early efforts to reverse quantitative easing from earlier years have so far been successful in that investors have taken the pullback in the ECB’s bond portfolio in their stride.
“We don’t know where exactly the end point will be — that’s being discussed at the moment, how big the balance sheet should be in the longer term,” she said. “But we have to make sure that, in times of many uncertainties and turbulence, we do it in a way that markets can digest it. So far, it’s worked extraordinarily well.”
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