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ECB board member Schnabel cautions against back-to-back rate cuts

The European Central Bank exterior.

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European Central Bank board member Isabel Schnabel warned against back-to-back rate cuts amid lingering inflation risks, Nikkei reported Friday, as the central bank gears for its June meeting amid expectations of a rate cut.

While a rate cut in June could be warranted depending on incoming data and projections, things are less certain beyond that, Schnabel told Nikkei.

The European Central Bank held interest rates at a record high for the fifth consecutive meeting last month, but is expected to cut it to 3.75% from the current 4% at its next meeting. 

“The path beyond June is much more uncertain. Recent data have confirmed that the last mile of disinflation is the most difficult,” Schnabel said, adding that a rate cut in July does not seem justified.

“After so many years of very high inflation and with inflation risks still being tilted to the upside, a front-loading of the easing process would come with a risk of easing prematurely,”  the ECB board member added.

Eurozone core inflation dropped in April to 2.7% from 2.9%. The ECB has set an inflation target of 2%.

Markets are also currently facing “very high uncertainty,” Schnabel noted, highlighting that market participants have shifted to pricing in around three rate cuts now from six at the beginning of the year.

Geopolitical tensions and policy uncertainty amid a slew of elections worldwide this year also pose risks to euro area financial stability, the ECB said in a recent financial stability review.

The review, however, highlighted that financial stability conditions have improved.

“The near-term risk of a deep recession accompanied by rising unemployment – a major source of concern six months ago – is much lower from today’s perspective,” ECB Vice President Luis de Guindos said in the review.

Read the full Schnabel interview on Nikkei.

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