European Central Bank Executive Board member Isabel Schnabel said officials can’t afford to be complacent about inflation and shouldn’t worry about raising borrowing costs too far.
(Bloomberg) — European Central Bank Executive Board member Isabel Schnabel said officials can’t afford to be complacent about inflation and shouldn’t worry about raising borrowing costs too far.
“We need to remain highly data-dependent and err on the side of doing too much rather than too little,” she said Monday in a speech in Luxembourg. “Risks of both a de-anchoring of inflation expectations and weaker monetary policy transmission suggest that there is a limit to how long inflation can stay above our 2% target.”
“We thus need to keep raising interest rates until we see convincing evidence that developments in underlying inflation are consistent with a return of headline inflation to our 2% medium-term target in a sustained and timely manner,” Schnabel said.
The remarks follow last week’s quarter-point hike and a pledge by President Christine Lagarde that another such move is “very likely” in July. Schnabel’s tone chimes with that of several of her colleagues who’ve since warned that the ECB’s historic tightening campaign may extend into the fall.
Bundesbank President Joachim Nagel said Friday that rates may need to keep rising “after the summer break,” while Belgium’s Pierre Wunsch cautioned that hikes will continue even beyond September if core inflation doesn’t slow down.
The measure, which strips out volatile components like energy and food, slowed to 5.3% in May but remains well above the ECB’s 2% goal. Lagarde said indicators of underlying inflation “remain strong” and show only “tentative signs of softening.”
Other policymakers are more circumspect. After investors ramped up bets on a September rate move, Bank of France Governor Francois Villeroy de Galhau described wagers on hikes as “excessively volatile” and urged against drawing premature conclusions.
Lithuania’s Gediminas Simkus and Slovakia’s Peter Kazimir agreed with the latter sentiment on Monday, saying it’s still too early determine whether a September increase is necessary. Three more euro-zone inflation readings and a new round of quarterly forecasts are among the data that will factor in the decision.
–With assistance from Jana Randow.
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