ECB Not Going To Stop Hiking Soon, Still Has To Do More, Schnabel Says

9 May 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank still has more work to do to bring inflation back to target and does not expect to stop hiking in the immediate future, Executive Board member Isabel Schnabel said on Tuesday.

Speaking at an event hosted by a private association that organises lectures on current topics, Schnabel said that the ECB would continue to hike until it became clear that core inflation would sustainably fall.

‘Based on the current data, there’s no doubt we have to do more to bring inflation back to our goal of 2% in a timely manner’, she said.

A slowdown from 50bp to 25bp hikes was ‘appropriate because it allows us to better assess the impact of our previous measures, especially in the current environment of heightened uncertainty’, she said. Furthermore, the deceleration was ‘not an indication that we will soon stop raising interest rates’, as ECB President Christine Lagarde made clear last Thursday, she said.

The ECB would continue with its hikes ‘until it is clear that core inflation is also coming down sustainably’, she said. Rate cuts currently priced in for the not-too-distant future ‘are highly unlikely in the foreseeable future from today's perspective’, she said.

‘We see that monetary policy is working […] but we have a lot of uncertainty about how fast and how much’, she said. ‘We do not yet see the impact on the real economy.’

‘Based on the data, a further rate hike of 50bp could have been justified’, at the ECB’s last monetary policy meeting, but the downward shift to a pace of 25bp would allow the ECB to better assess the impact of monetary policy, she said.

The ECB ‘can reach a level of interest rates that is sufficiently restrictive even in steps of 25bp’, she said.

She told the audience that ‘inflation, including core inflation, remains far too high’ and that ‘interest rates are likely to remain high for quite some time.’