©Health & Fitness Journal. FILE PHOTO: Isabel Schnabel, member of the German Advisory Board of Economic Experts, attends the 29th Frankfurt European Banking Congress (EBC) at the Alte Oper in Frankfurt, Germany, November 22, 2019. REUTERS/Ralph Orlowski/File Photo
FRANKFURT (Health & Fitness Journal) – The European Central Bank must be prepared to endure the heat and continue raising interest rates, including by more than the market expects, if it is needed to bring down inflation, ECB policymaker Isabel Schnabel said in an on Saturday published interview.
The ECB raised interest rates for a fourth straight week last week and hinted at more hikes – rocking euro-zone bond markets and sparking a backlash from the Italian government.
Investors now expect the interest rate the ECB pays on bank deposits, currently at 2%, to rise to 3.4% next year from a peak of 2.75% before last week’s decision was priced in.
Schnabel, the leading voice in the ECB’s dovish camp, which has been driving recent rate hikes, opened the door for an even larger hike in the deposit rate than the market expects if the inflation outlook calls for it.
“Whether we need to go even higher depends on future inflation prospects,” she told the Frankfurter Allgemeine Zeitung.
She added that the ECB will focus on medium-term inflation expectations rather than current levels and sees little risk of raising borrowing costs too much at the moment given the still very low real interest rates.
Three senior Italian ministers have slammed the ECB’s recent decision, which has pushed up borrowing costs for heavily indebted Italy.
Schnabel said the ECB should withstand the pressure.
“We have to reckon with increasing recoil and we have to withstand it,” she said in an interview. “That’s exactly why central banks are independent.” (This story has been refiled to correct the headline)