FRANKFURT (Reuters) – The European Central Bank (ECB) would be wise not to cut its key interest rates to a level that boosts growth because that would not address deep structural flaws in the economy, said Isabel Schnabel, a member of the board of governors of the institution.
Investors expect the ECB to cut rates at each of its next meetings, at least until next June, which would bring the deposit rate, currently at 3.25%, to 1.75%. by the end of 2025.
In the opinion of many economists, this rate level is considered capable of stimulating economic growth.
Isabel Schnabel, however, seems to brush aside this argument, arguing that the central bank’s stimulus measures do not resolve structural problems. She believes that this could also deprive the institution of a useful tool in the event of an economic shock requiring rapid action.
“Looking at the inflation outlook, I believe we can gradually move closer to neutrality (a neutral rate that neither stimulates nor hinders economic growth) if incoming data continues to confirm our base case,” he said. -she declared in an interview published Wednesday by the Bloomberg agency.
“I would caution against moving too far, that is, towards accommodative territory. I don’t think that is appropriate in the current perspective,” she added.
Some ECB officials have called for an acceleration of the institution’s rate reduction and possible economic stimulation in a context of a faster-than-expected decline in inflation, which could fall below the 2% target. Isabel Schnabel, however, rejects this hypothesis.
“Inflation risks are now more balanced. But I don’t see a significant risk of inflation below target, particularly one that would warrant a response from us,” she said.
Isabel Schnabel added that she did not see a recession in the euro zone and that there were signs of a recovery driven by consumption, which could support the prospect of a modest recovery in the bloc’s economy recently mentioned by the central bank.
(Written by Balazs Koranyi; Claude Chendjou, edited by Blandine Hénault)
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