ECB’s Schnabel: Additional Data Needed to Discuss Interest Rate Cuts

10 January 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Wednesday said that more data confirming that inflation had sustainably converged to the ECB’s target were necessary before discussing a reduction in interest rates.

During a live Q&A on X, formerly known as Twitter, Schnabel said, ‘It is too early to discuss rate cuts. We will keep our key policy rates at restrictive levels until we are confident that inflation sustainably returns to our 2% target. This requires additional data confirming the disinflationary process.’

She declined to say whether the ECB would start the easing process before reaching the 2% inflation target, noting simply that ‘[c]rucial indicators for the outlook of underlying inflation are the developments of wages, profits and productivity.’

‘We expect inflation to reach 2% in 2025 and project that we can achieve this without causing a deep or prolonged recession’, she said.

Despite the fact the ECB’s ‘projections foresee inflation reaching our 2% target in 2025’, it was necessary to remain vigilant, as geopolitical tensions could impact energy prices or fright costs, she said.

‘Inflation has eased but underlying price pressures remain elevated’, she said.

Asked about market’s insistence on pricing a cut in interest rates in March or April, she said that ‘markets understand well that our policy is data-dependent and we have clearly defined the elements of our reaction function.’