ECB’s Schnabel: ‘Further Rate Increase Rather Unlikely’

5 December 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Tuesday said that given recent inflation developments, further interest rate hikes were improbable.

In an interview with Reuters, Schnabel said that inflation figures had been encouraging and that '[t]he most recent inflation number has made a further rate increase rather unlikely.’

Victory over inflation should not be declared prematurely, she said, as risks to price stability could still materialise.

‘We continue to expect an uptick over the coming months. There’s going to be a reversal of some fiscal measures and of some base effects, and we cannot exclude that there’s going to be a new price spike in energy or food’, she said.

The current level of interest rates had to be maintained for some time to ensure price stability, she said.

‘After more than two years of above-target inflation, we need to err on the side of caution… [W]e confirmed that our key policy rates need to remain sufficiently restrictive for as long as necessary to bring inflation back to our 2% target in a sustainable manner. This should happen no later than 2025’, she said.

The deceleration of the labour market was not indicating ‘a significant deterioration or a deep and prolonged recession’, she said.

‘We’re going to watch upcoming wage agreements very closely’, she said. ‘This will certainly also matter for our monetary policy decisions.’

The end of the reinvestments under the pandemic emergency purchase program (PEPP) was ‘not such a big deal’, she said, considering markets were already expecting it and the amount involved was not that large.

Regarding the minimum reserve requirements, she emphasised that they ‘are not a tool for adjusting our monetary policy stance’ and their role in the ECB’s operational framework and that their role would be discussed in the ECB’s operational framework review.

The growth of autonomous factors and of reserve requirements were among the main drivers of central bank’s balance sheets, she said.

‘What is clear is that the balance sheet has to be much larger than it was before the global financial crisis. But, for all the frameworks under consideration, the balance sheet is going to be much smaller than it is now’, she said.