ECB board member Isabel Schnabel has spoken out against rapid interest rate cuts in the euro area. In an interview with the Financial Times, the central banker said that the European Central Bank (ECB) should proceed “patiently and cautiously” when easing monetary policy.
Schnabel pointed to continued inflation in the services sector, a resilient labor market and geopolitical tensions in the Middle East. “All of this taken together speaks against an early adjustment of the political course.”
“We’re not there yet”
In addition, experience has shown that inflation can rise quickly again, said Schnabel: “I’m not saying that inflation will flare up. That’s not my starting point, but I think we should be prepared for this risk .”
In order to curb the temporarily very high inflation, the ECB has increased the key interest rates in the Eurozone ten times in a row since summer 2022. Higher interest rates make loans more expensive, which can slow down demand and counteract high inflation rates. However, because rising loan interest rates also make investments more expensive and this can slow down the currently weakening economy, calls for interest rate cuts have recently become louder.
In January, inflation in the currency area weakened to 2.8 percent. The ECB is aiming for a rate of two percent in the medium term. In 2022, inflation in the common currency area temporarily rose above the ten percent mark. “We have made significant progress, and that is good news. But we are not there yet,” said Schnabel, who has repeatedly spoken out against rapid interest rate cuts.