European Central Bank Executive Board member Isabel Schnabel stated that the ECB should proceed with an interest rate hike in June, even if a peace agreement with Iran is reached. She emphasized that the conflict has lasted far longer than anticipated, and high energy prices are now spreading to the broader economy.
The ECB has maintained unchanged interest rates over the past year but began discussions on a rate increase last month. This shift is driven by soaring energy costs, which have pushed inflation significantly above the central bank's 2% target. Several policymakers have signaled the necessity of taking action.
Schnabel remarked, "Given the scale and persistence of the current shock, I believe a rate hike in June will be necessary from today's perspective." She added, "Even if the war were to end today, substantial damage has already been inflicted on energy infrastructure and global supply chains, making a monetary policy response essential. In terms of persistence, the situation has actually exceeded our adverse scenario, which assumed a rapid normalization of oil prices."
Schnabel also noted that some second-round effects may already be emerging, with various surveys indicating such signals. She said, "We are increasingly observing this shock spreading to other parts of the consumption basket."
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