FRANKFURT: The European Central Bank is on track to lower inflation and cut interest rates but needs to have a deep think about how much further and how quickly policy should be eased, ECB board member Isabel Schnabel said in a media interview published on Sunday.
The ECB cut rates four times last year and another three or four moves are expected this year with the first of these coming on Jan. 30 as inflation, at 2.4% in December, was seen getting back to its 2% target by around mid-year.
But the internal debate on how much further the ECB should go in cutting its 3% deposit rate has been intensifying in recent weeks, especially given the uncertainty created by the trade barrier proposals of the incoming US administration.
“We are on the right track and expect to return to our inflation target of 2% this year,” German financial website Finanztip quoted Schnabel as saying on Sunday.
“If this is the case, we will probably be able to cut interest rates further.”
“However, after the sharp interest rate cuts in recent months, we are getting closer and closer to the point where we need to take a closer look at whether and how much further we can cut interest rates,” said Schnabel, an outspoken conservative, or policy hawk, in central bank parlance.
ECB’s Centeno sees interest rates falling to about 2% as inflation under control
Schnabel argued that the uncertainty over US trade barriers is dampening consumption and investment in Europe and keeping growth weak.
But structural factors, from low levels of innovation to the difficulty of starting up firms and the ageing of the population are the real drag, she argued.
Europe’s labour force in shrinking just as people seek to work fewer hours to enjoy their hard earned cash, so relying more on foreign workers will be vital, Schnabel added.
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