"ECB should raise interest rates in June"/ Schnabel: Decision-making even if peace agreement with Iran is reached
"The ECB should raise interest rates in June, even if peace talks with Iran produce a deal, as the conflict has lasted much longer than anticipated and high energy prices are weighing on the economy," board member Isabel Schnabel said.
The European Central Bank has kept interest rates unchanged over the past year but debated raising them last month as sharply higher energy costs pushed inflation well above its 2% target, and many policymakers have signaled the need for action.
"Given the magnitude and persistence of the current shock, reviewing the situation is no longer an option in my opinion," Schnabel said. "From today's perspective, I think a June interest rate hike will be necessary."
While the US has signaled progress in peace talks with Iran, Schnabel, a potential successor to ECB President Christine Lagarde next year, said the ECB may have passed a point of no return because energy infrastructure has been damaged and high energy prices are affecting the broader economy.
“Even if the war were to end today, a lot of damage has already been done to the energy infrastructure and global supply chains,” said Schnabel, a former university professor. “So even then, I believe a monetary policy response would be necessary.” “In terms of sustainability, we have actually moved beyond the adverse scenario, which assumed a rapid normalization of oil prices,” she said.
Inflation hit 3% last month, with further increases likely, and policymakers worry that high energy costs will push up the price of other goods and services through second-round effects, triggering an inflationary spiral that is difficult to beat.
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