ECB’s Schnabel: ‘We Cannot Close the Door to Further Rate Hikes’
3 November 2023
By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel late Thursday said that further interest rate hikes could still be necessary.
In a speech at an event of the St. Louis Federal Reserve, a text of which was posted to the website of the ECB, Schnabel said that the ‘last mile’ of the disinflation process was uncertain and required close vigilance.
‘After a long period of high inflation, inflation expectations are fragile and renewed supply-side shocks can destabilise them, threatening medium-term price stability. This also means that we cannot close the door to further rate hikes’, she said.
Despite encouraging progress on inflation, Schnabel said that it was ‘inherently difficult to estimate the degree of monetary tightening required to bring inflation back to 2% over a certain horizon.’
The biggest challenges to price stability now were the calibration of monetary policy and the risks of supply-side shocks, she said.
‘It is no longer about mechanical price reversals but about creating the conditions required for the indirect and second-round effects of supply-side shocks not to become entrenched in underlying inflation’, she said.
In this context, the data-dependent approach was necessary to guarantee that ‘monetary policy is at all times calibrated in accordance with the circumstances’, she said.