Report by Link Securities
Isabel Schnabel, a German member of the European Central Bank (ECB) Executive Board, stated that the ECB should raise interest rates in June, even if peace negotiations with Iran result in an agreement. It should be noted that the ECB has kept its key interest rates unchanged for a year, but that inflation in the Eurozone stood at 3% in April, above the ECB’s 2% target. That is why Schnabel believes that the economic impact of the war and the energy crisis is already too great to ignore. In this regard, she noted that, even if peace is achieved immediately, the damage to energy infrastructure and supply chains has already been done. Schnabel stated that high energy prices are also beginning to affect the prices of other goods and services, creating the risk of an inflationary spiral that is difficult to control. Schnabel believes that at least one rate hike in June will likely be necessary, although she does not rule out further increases thereafter. Schnabel also stated that the ECB should not commit to any monetary policy moves, and that it will review its decisions on a meeting-by-meeting basis, depending on the economic data.
