Isabel Schnabel, a member of the Governing Council of the ECB, warned that the ECB has “limited” scope to raise interest rates in smaller stepsas government measures to protect households and businesses against rising energy prices keep inflation in the Eurozone at a higher level for a longer period of time.
According to Schnabel, market expectations of a move to smaller rate hikes at next month’s meeting have reduced borrowing costs, making it more difficult to move to a slower pace of monetary tightening.
Schnabel believes that due to the impact of government support measures the ECB should raise interest rates further to reduce eurozone inflation, and return to the 2 percent target.
The paper notes that investors are most likely expecting a 0.5 percentage point rate hike next month, after the ECB raised rates by 0.75 percentage points at its last two rate-setting meetings. However, Schnabel said that the data coming in so far suggests that there is still limited room to slow the pace of rate hikes, even as we approach estimates for a “neutral” interest rate.
According to the article, Schnabel’s comments underscore the potential for clashes at the ECB’s interest rate meeting next month, as policymakers are divided over whether to maintain the pace or move to smaller hikes amid signs of a recession.
The minutes of last month’s ECB meeting published on Thursday revealed that members of the Governing Council are increasingly concerned that inflation will remain at a high level and that secondary effects and a price-wage spiral may develop.
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Source: Portfolio.hu – Gazdaság by www.portfolio.hu.
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