Latest News

ECB must be ready to act if inflation proves more durable: Schnabel

Economy4 minutes ago (Nov 17, 2021 15:32)

© Reuters. FILE PHOTO: Isabel Schnabel, member of the German advisory board of economic experts attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski/File Photo

FRANKFURT (Reuters) -The European Central Bank must be ready to rein in inflation in the euro zone if it proves more durable than forecast, ECB board member Isabel Schnabel said on Wednesday, hinting at divisions among policymakers.

Euro zone inflation hit 4.1% last month, more than twice the ECB’s target, as consumers paid nearly a quarter more for energy and demand recovered faster than supply from last year’s pandemic-related slump.

Schnabel reaffirmed the ECB’s view that price growth would moderate next year but cautioned that the outlook had become more uncertain and policymakers should keep their options open when they chart the path ahead for policy in December.

“This means avoiding the mistake of a premature tightening of monetary policy in response to a temporary and possibly short-lived inflation spike,” Schnabel said.

“On the other hand, it means keeping a watchful eye on the upside risks to inflation that financial markets currently anticipate and retain optionality to be able to act if needed.”

Markets are pricing in inflation at 2% for years to come and see the ECB raising its policy rate by this time next year.

Schnabel said ECB rate-setters were unanimous in recognising that higher energy costs and supply bottlenecks were among key drivers of the rise in inflation.

But in a rare admission by an ECB policymaker, she said there was “less agreement” on whether inflation would stay high or not and on the future path of policy.

“There is less agreement on the persistence of many of these price pressures, and what they mean for the appropriate response of monetary policy,” Schnabel said.

The ECB has pledged not to raise interest rates until inflation stabilises at 2% and anyway not before ending its asset purchases.

The central bank for the 19 countries that use the euro currency is expected to wind down its Pandemic Emergency Purchase Programme at its Dec. 16 meeting but continue buying bonds under its regular quantitative easing programme.

Schnabel said extending asset purchases would serve the purpose of pushing out rate-hike expectations.

“By continuing to buy, possibly at a relatively low level, one can signal that a rate hike is not imminent,” Schnabel said.

ECB must be ready to act if inflation proves more durable: Schnabel

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Sterling Jumps on Strong CPI, Euro Selloff Continues

Previous article

AIA: "Demand for design services moderates but remains strong" in October

Next article

You may also like


Leave a reply

Your email address will not be published.

More in Latest News