ECB’s Schnabel: ‘Can No Longer Say With Confidence That Our Policy Is Restrictive.’

25 February 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Tuesday questioned whether ECB monetary policy was still in restrictive territory and urged that any rate steps be taken with care.

In a speech at the at the Bank of England’s 2025 BEAR Conference, Schnabel, according to a text made available by the ECB, said that r* had risen in recent years, calling the upward drift ‘unambiguous’ and arguing that a return to the environment of very low interest rates in an effort to safeguard price stability was unlikely.

‘This suggests that the nature of the inflation process is likely to have changed lastingly’, she said.

Monetary policymakers, she stressed, had to operate with caution, assessing the speed and scope of transmission of rate moves.

‘For the euro area, this assessment suggests that, over the past year, the degree of policy restraint has declined appreciably – to a point where we can no longer say with confidence that our policy is restrictive’, she said.

The ECB’s latest bank lending survey indicated that current interest rates were limiting corporates’ demand for credit significantly less than they had a year ago, she said. The survey results with respect to home loans suggested even more strongly that monetary policy was now far from restraining demand, she said.

Citing additional evidence, Schnabel concluded that ‘it is becoming increasingly unlikely that current financing conditions are materially holding back consumption and investment. The fact that growth remains subdued cannot and should not be taken as evidence that policy is restrictive.’

Rather, economic weakness was mainly structural, limiting the stimulative impact of monetary policy, she said.