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
November 17, 2021
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 an open mind.
“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.”
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 main bond-buying scheme, on which it is expected to provide fresh guidance in December.
Markets are pricing in inflation at 2% for years to come and see the ECB raising its policy rate by this time next year.
(Reporting by Balazs KoranyiEditing by Francesco Canepa and Catherine Evans)
Source: One America News Network
