In an interview by De Tijd, ECB Executive Board member Isabel Schnabel noted that “given the high uncertainty about the persistence of inflation, the costs of doing too little continue to be greater than the costs of doing too much.”
She emphasized “once inflation has become entrenched in the economy, it becomes much more costly to fight it,” adding that “We have more ground to cover. It will depend on the incoming data by how much more rates will have to increase.”
On the topic of market expectations of two more additional 25bps hikes, Schnabel remained data-driven. She responded, “That will depend on the incoming data. Let me be very clear: A peak in underlying inflation would not be sufficient to declare victory: we need to see convincing evidence that inflation returns to our 2% target in a sustained and timely manner. We are not at that point yet.”
Regarding monetary policy transmission precess, Schnabel explained, “A rise in the policy rate first has an impact on financing conditions, then on the real economy, and ultimately on wages and prices.” She revealed that ECB’s staff analysis suggests the effects of tighter monetary policy are currently in progress, with the impact on inflation expected to peak in 2024.
However, Schnabel cautioned that uncertainty persists around the strength and speed of this process, admitting, “it may take longer than was previously the case to see the impact of our policy.”
