(Bloomberg) — A half-point interest rate increase can’t be ruled out for the European Central Bank’s May 4 meeting, according to Executive Board member Isabel Schnabel.
(Bloomberg) — A half-point interest rate increase can’t be ruled out for the European Central Bank’s May 4 meeting, according to Executive Board member Isabel Schnabel.
“Data dependence means that 50 basis points are not off the table,” Schnabel told Politico in an interview published Monday.
Still, “we are going to look at all the available data at that point in time,” she said. “The data we have so far shows that inflation is higher and the economy more resilient than projected.”
The ECB is widely expected to raise borrowing costs again next week, though in contrast to previous meetings officials are wary of making firm predictions on the size of the move as they await key data on inflation and bank lending due just two days before the decision.
The reports will reveal whether underlying price pressures, stripping out elements like energy and food, are still at record levels and will shed light on the consequences for credit from recent financial-sector stress that sank lenders in the US and Switzerland.
“I would say it’s clear that further rate hikes are needed, but the size of the rate hikes is going to depend on the incoming data,” Schnabel said.
The German official also warned that because of the persistence of underlying price growth, “it’s far too early to declare victory on inflation.” She added that the point at which the measure starts declining shouldn’t be the decisive factor for the ECB.
“If core inflation is reaching a peak, but it remains very high and very persistent, the information content of that data point may be relatively limited,” Schnabel said. “So what we really need is confidence that it’s actually coming down in a sustained manner.”
Further comments by Schnabel:
- ECB is seeing “first signs of transmission of our interest rate hikes. Already before the banking turbulence, there was a slowdown in loan growth”
- “The recent financial turbulences have led to higher uncertainty and are likely to lead to a further tightening in financing conditions. This certainly needs to be taken into account”
- “I certainly cannot tell you where the terminal rate is going to be. Interest rates must be set from meeting to meeting”
- “So far, there are no particular signs of a weakening in economic developments. At this point in time, I have no reason to believe that a recession is coming”
- “The goal is to completely phase out reinvestments under the APP, and the precise timing is going to be decided soon. We continue to be predictable”
- “We have not yet discussed whether there could be a change” to reinvestments under the PEPP portfolio
(Adds further comments by Schnabel from seventh paragraph.)
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