European Central Bank Executive Board member Isabel Schnabel reinforced the ECB’s hawkish stance on Thursday, arguing that the recent ceasefire in the Middle East does not diminish the need for further policy tightening. “The ceasefire is no reason for monetary policymakers to let their guard down,” she said in an Interview with Die Zeit, warning that while oil prices have retreated from their recent peaks, medium-term energy prices remain elevated and uncertainty is still high. Schnabel also defended the ECB’s June rate hike, saying the decision “was appropriate in all the scenarios we considered, including a milder scenario in which oil prices normalise rapidly.”
Looking ahead, Schnabel made clear that additional tightening remains her baseline expectation. “From today’s perspective, we will need to raise interest rates further in order to bring inflation back to our two percent target over the medium term,” she said. At the same time, she emphasized that policymakers are not following a predetermined path, adding that “the extent and timing of further measures will depend on how the conflict, the economy and inflation evolve.” Her remarks are consistent with market expectations that the ECB will proceed cautiously while retaining a tightening bias.
Schnabel argued that the central bank’s priority is preventing higher energy prices from feeding into broader inflation through wages and corporate pricing. “It was necessary to prevent elevated medium-term energy prices from causing second-round effects and even higher inflation,” she said, warning that policymakers “can’t let it get to a point where prices and wages enter into a mutually reinforcing spiral.” While acknowledging that higher borrowing costs will weigh on growth, Schnabel maintained that interest rates are “not yet restrictive,” reinforcing the message that the ECB believes further policy normalization will still be needed even if geopolitical tensions continue to ease.
![Pinterest](https://pinterest.com/pin/create/button/?url=https://www.actionforex.com/live-comments/645131-schnabel-ecb-will-need-more-rate-hikes-despite-middle-east-ceasefire/&media=https://www.actionforex.com/wp-content/uploads/2018/04/f-ecb13.jpg&description=ECB Executive Board member Isabel Schnabel said the central bank will likely need further rate hikes despite the Middle East ceasefire. She warned policymakers cannot "let their guard down" as inflation risks remain elevated.){kind=link}