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ECB does not need to stimulate economy, Schnabel says

by October 30, 2024
written by October 30, 2024

FRANKFURT (Reuters) -European Central Bank board member Isabel Schnabel pushed back on Wednesday against calls for ultra-easy monetary policy, arguing that inflation was unlikely to ease below its 2% target so gradual rates cuts remained appropriate.

Policy doves, mostly from the euro zone’s south, raised concern last week that inflation could fall too far and this may require the ECB to cut rates to below the so-called ‘neutral level’, where it neither stimulates nor holds back economic growth.

Conservatives, still holding the majority on the 26-member Governing Council, quickly pushed back and Schnabel, an outspoken policy hawk, added her voice to their chorus of resistance.

“The risk of meaningful and persistent undershooting of the inflation target remains small,” Schnabel said in a presentation for a speech in Frankfurt. “Projected growth in 2025 is close to potential, (so there is) no need to go below neutral.”

She argued that disinflation remains on track but the fight against inflation is not yet won so a gradual approach to removing restrictions remains appropriate.

“As we soon get closer to neutral territory, we will need more time to assess how restrictive policy still is on the basis of our outlook and incoming data,” she said.

Those comments are likely aimed at policymakers who say the ECB should even consider a 50 basis point rate cut in December given the risk that it acts too late.

Markets had given such a move a 40-50% change in recent days but largely priced out a bigger step after third quarter growth came in well above expectations on Wednesday, indicating that the economy is holding up just fine.

“This week’s data strengthens the case for maintaining the 25 basis point easing pace in December, while a 50 basis point cut remains far off, in our view,” Barclays said in a research note.

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