ECB’s Schnabel: Should Keep Rates Around Current Levels, Going Accommodative ‘Inappropriate’

10 May 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Executive Board member Isabel Schnabel said on Saturday that the ECB should keep rates near current neutral levels, and that an accommodative stance would be inappropriate.

In a speech at the Hoover Monetary Policy Conference at Stanford University, Schnabel said that the ECB should ‘keep a steady hand’ and ‘keep rates close to where they are today – that is, firmly in neutral territory.’

Remaining steady would allow the ECB to avoid overreacting to volatility in headline inflation while domestic inflation has remained ‘sticky’ and new upward forces have emerged for underlying inflation in the medium term.

The ECB had to stay focused on the medium term and avoid reacting to short-term events, according to Schnabel.

Doing this ‘could result in the peak impact of our policy only unfolding when the current disinflationary forces have passed’, she added.

Risks to inflation were ‘likely’ tilted to the upside in the medium term, she said, due to higher fiscal spending and inflationary risks from trade tensions.

‘Therefore, from today’s perspective, an accommodative monetary policy stance would be inappropriate, also because recent inflation data suggest that past shocks may unwind more slowly than previously anticipated’, she said.

Current interest rate levels were neither ‘excessively’ restrictive for economic activity or unemployment, nor accommodative, she said.

‘We are thus in a good place to evaluate the likely future evolution of the economy and to take action if risks materialise that threaten price stability’, she said.

High uncertainty, lower energy prices and a higher exchange rate would likely push headline inflation down in the medium term, she said, ‘potentially pushing it below our 2% target.’

‘The question is however whether these developments provide meaningful signals about the medium term’, she said.

Higher fiscal spending and global trade tensions could have a positive impact on underlying inflation over the medium term, according to Schnabel.

‘Even if the EU does not retaliate, higher production costs to global value chains could more than offset the disinflationary pressures coming from lower foreign demand, making tariffs inflationary overall’, she said. ‘This effect becomes stronger with full retaliation.’