O European Central Bank (ECB) is approaching a break in interest cuts, Since it is not clear that monetary policy remains restrictive and increases in energy prices raise the risks of inflation, Isabel Schnabel, a member of the BCE board of directors, told Financial Times.
The ECB has cut interest five times since last June and the markets predict three other cuts this year, given the moderation of price pressures. But some authorities, such as Schnabel, have been increasingly manifested about the need for caution.
“We are approaching the point where we may have to pause or interrupt our interest cuts,” said Schnabel according to FT on Wednesday (19). “I’m not saying we’ve already got there. But we have to start the discussion. ”
Part of the question is that at 2.75%, the ECB deposit rate may no longer be restricting economic activity, although inflation has not yet returned to the target of 2%.
The ECB has already removed a reference to wanting to maintain the “restrictive” policy, which has fueled a debate on where the restriction ends, a difficult level to define and above all subjective.
“The data is showing that the degree of restriction has decreased significantly, to a point where we can no longer say with confidence that our monetary policy is still restrictive,” said Schnabel.
She stated that the neutral interest rate, which does not restrict or stimulate growth, may have even increased in recent years and its discharge may continue due to major structural challenges such as high indebtedness and green transformation.
Schnabel also warned that a recent increase in natural gas prices could delay the return of inflation to 2%, the projection of the ECB should be reached at the beginning of the second half.
“I see the risks to our outlook on inflation as a little inclined up,” said Schnabel. “Therefore, I would not exclude the possibility that inflation returns to 2% later than we had predicted.”
