Zhitong Finance and Economics learned that Isabel Schnabel, a member of the ECB's executive board, warned against cutting interest rates too soon because of concerns about inflation.
Speaking in Florence, Italy, Schnabel said monetary policy must remain restrictive until the ECB is convinced that price increases will sustainably return to the medium-term target of 2%.
"The recent prolonged period of high inflation suggests that we must be cautious and not prematurely adjust our policy stance to avoid being forced into a stop-and-go policy similar to the one we did in the '70s," she said Friday. ”
ECB President Christine Lagarde also warned against "rushing to cut interest rates" in her speech a day ago, arguing that there is not yet enough evidence that inflation in the eurozone is returning to target. Previously, she had suggested that summer was the right time to lower borrowing costs.
Lagarde's comments echoed the views of Bundesbank President Joachim Nagel and other hawkish members of the Governing Council, who said on Wednesday that history showed that easing monetary policy too soon was worse than easing it too late, warning that acting too early "will ultimately cost more economically."
However, with deflation too fast and the economy in trouble, which only escaped recession last year, people are more worried that monetary easing will drag on for too long. France's François Villeroy de Galhau also said in a recent interview with Les Echos that "gradual and pragmatic approach may be preferable to a decision too late".
It is worth noting that price growth in the G20 cooled more than expected last year and is expected to slow further in 2024, albeit at a more modest pace. Many** would like to get a clearer picture of how wages and corporate profits are developing before deciding to cut rates, but these figures will not be released until after the April policy meeting.
In addition, Schnabel** examines the impact of declining productivity on inflation. "Productivity growth has continued to be sluggish, and more recently even negative, exacerbating the impact of the current strong nominal wage growth on corporate labor costs," she said. This increases the risk that businesses will pass on higher wage costs to consumers, potentially delaying inflation back to our 2% target. ”