The European Central Bank (ECB) must soon decide whether to be more cautious with its interest rate reduction programme, according to ECB board member Isabel Schnabel in an interview with the Financial Times.
"We are approaching the point where we need to pause or stop our rate cuts," Schnabel stated in the interview, published on Wednesday. "We need to initiate the discussion."
The German economist noted that it is "no longer certain" that the ECB’s policies are restrictive, meaning they slow the economy to combat high inflation. Schnabel suggested that March’s policy meeting should discuss whether related statements should be removed from the accompanying policy document.
Inflation in the eurozone has decreased but remains above the ECB’s target of 2%. "Both services inflation and wage growth are still at uncomfortably high levels," Schnabel said. "Our projections forecast a slowdown for both, but this has yet to materialise." Additionally, volatile energy prices continue to pose a risk.
To tackle the soaring inflation, the ECB had rapidly increased interest rates from mid-2022 to unprecedented levels. Since mid-2024, there have been five rate cuts.
The key deposit rate, at which banks can park money with the ECB, now stands at 2.75%. Markets expect a sixth policy rate cut of 0.25 percentage points next month.
