TOKYO: European Central Bank (ECB) board member Isabel Schnabel said the central bank may slash interest rates in June, but advocated caution about further cuts in borrowing costs given uncertainty over the outlook, Japan’s Nikkei newspaper reported.
A rate cut in June may be appropriate depending on the incoming data, Schnabel said but added that a reduction in July was unwarranted and stressed that the path beyond June was “much more uncertain.”
“Recent data have confirmed that the last mile of disinflation is the most difficult,” Schnabel said in an interview with Nikkei in Frankfurt that was posted on its website on Friday.
After many years of “very high” inflation and with price risks still tilted to the upside, pushing forward the timing of rate cuts would risk easing monetary policy prematurely, she said.
“Further progress in inflation and especially domestic inflation, which is proving stickier, is needed to foster our confidence that inflation is going to sustainably return to our 2% target in 2025 at the latest,” Schnabel was quoted as saying.
The ECB left interest rates unchanged last month but made clear that its next move will be a cut, most likely on June 6, provided wage and inflation data stay on their current, relatively benign path. Schnabel said the ECB could not pre-commit to any particular rate path because of “very high uncertainty” over the outlook for inflation.
“We should move cautiously. We should look very carefully at the data because there is a risk of easing prematurely,” she said, when asked whether the ECB should move slowly in cutting rates beyond summer, according to the Nikkei.
Geopolitical tensions threaten eurozone stability: ECB
Schnabel, however, said geopolitical shocks such as from the escalating tension in the Middle East could pose upside risks to the inflation outlook.
“Over the longer run, geopolitical fragmentation would pose further upside risks to inflation by reducing the efficiency and reliability of global supply chains,” she said.
She declined to comment when asked about Japan’s suspected recent currency intervention to prop up the yen, the Nikkei said.
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