European Central Bank Executive Committee says interest rate hikes are far from over, interest rates will be forced to be higher than neutral levels

ECB Executive Says Rate Hike Far From Over, Rates Will Be Forced Above Neutral

News from the Associated Press on December 27 (Editor Zhao Hao)European Central Bank executive Isabel Schnabel said interest rates would have to move into “restrictive territory” in order to bring inflation back to the bank’s target.

Schnabel said in an interview published by German media last Saturday (December 24) that because real interest rates are still low, the risk of excessive tightening by the ECB is limited.

Not long before the interview, the European Central Bank announced at the last interest rate resolution of the year that it would raise the three key interest rates by 50 basis points, and the interest rate reached the highest level since December 2008.

Looking back on the four consecutive interest rate hikes this year, Schnabel said that this is what the central bank must do to get inflation back to 2%. She also reiterated Governor Christine Lagarde’s stance that the cycle of rate hikes will continue “for some time”.

As for the end point of the rate hike, Schnabel said: “According to our estimates, this rate needs to be in the restrictive territory, that is, a level above the neutral rate.” Reaching consensus is not easy.

Earlier this year, the ECB, like major central banks such as the Fed, underestimated the persistence of inflation. Signs of rising inflation were not looked at internally enough at the time, Schnabel noted, eventually allowing “too high” to replace “too low” as the main risk.

She explained that at the beginning, many people worried that premature monetary policy might bring regarding a slowdown or recession in the economy, and they also underestimated the impact on prices of European countries’ relaxation of new crown restrictions. Later, some people thought that the supply chain bottleneck would be resolved sooner, but the fact is that it lasted longer than expected.

Inflation in the euro zone might remain “significantly” above 2% until 2025, according to the latest ECB forecasts. Schnabel called this long period of high inflation problematic and the ECB might hardly say that it had achieved its price stability objective.

Also on Saturday local time, Pierre Wunsch, the ECB Governing Council and President of the Belgian Central Bank, told local media, “The consensus within the ECB is very clear that we are still a long way from a sufficiently tight monetary policy.”

Looking ahead, Schnabel expects growing opposition to rate hikes because of the impact on the finances of some governments, including the Italian government, which has begun to object strongly, “We need to bear it, this is the independence of the central bank. sex. “