European Central Bank Executive Board member Isabel Schnabel stated that the ECB should raise interest rates next month, even if the conflict in the Middle East is resolved swiftly.
"Given the scale and persistence of the current shock, in my view, inaction is no longer an option," she said in a report. "Based on the current situation, I believe a rate hike in June is necessary."
In an interview published on Tuesday, Schnabel noted, "Even if the war ended today, significant damage has already been inflicted on energy infrastructure and global supply chains."
"Therefore, even under such circumstances, I believe monetary policy measures are still required," she stated. However, she added that the ECB should not commit to any policy actions beyond June.
Markets widely anticipate that the ECB will raise interest rates by 25 basis points on June 11, as surging energy prices drive up inflation in the region. Nevertheless, some policymakers have cautioned against overly restrictive policies given the economic impact of the conflict.
New forecasts will also be released at that time, with staff updating the baseline, adverse, and severe scenarios. These projections will play a crucial role in determining the ECB's next steps.
Unlike some of her more dovish colleagues, Schnabel pointed out that second-round effects are beginning to emerge.
"We are seeing increasing signs that this shock is spreading to other parts of the consumer basket," she remarked.
She also warned, "Given the prolonged duration of the shock, I believe the negative impact on economic growth could be more significant."
"We have observed a sharp decline in confidence indicators, particularly consumer confidence," Schnabel said. "All of this suggests downside risks to economic growth and upside risks to inflation."
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