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ECB advised to be patient with rate cuts by Schnabel in interview with FT.

ECB Must Exercise Patience with Rate Cuts, Advises Schnabel

ECB Board Member’s Cautionary Note on Interest Rate Cuts

The European Central Bank (ECB) must exercise patience in cutting interest rates, according to ECB board member Isabel Schnabel. She cautioned that inflation could flare up again, and recent data confirm fears that the ‘last mile’ of getting price growth down will be the hardest, Schnabel told the Financial Times.

Debate Intensifies Over Policy Easing

The ECB has been holding interest rates at record highs since September. However, the debate over policy easing is intensifying, and markets see the bank starting to reverse course this spring given weak growth and fading price pressures.

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Warning Against Cutting Too Soon

Schnabel cautioned against cutting rates too soon, arguing that past rate hikes have already made their peak impact. She highlighted that some worrying signs remain as a new, ‘critical’ phase of disinflation begins.

Concerns Over Second-Round Effects

Schnabel emphasized that it is crucial to contain second-round effects of monetary policy. Recent data caution against easing policy too soon, especially as disruptions of shipping in the Red Sea have sparked concerns over fresh supply chain disruptions.

Consensus on the Next Move

While conservatives or hawks in central bank-speak have argued for patience in cutting rates, most have accepted that the next move will be a cut. While they have pushed back on bets for a move in April, a move around mid-year appears uncontroversial.

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Optimism Amid Weak Economic Growth

Schnabel also appeared optimistic that firms are absorbing some of the recent wage growth, as the ECB had long hoped, since economic growth is weak and they have little room to push higher costs onto customers.

Continued Progress

“We have made substantial progress, and that is good news,” Schnabel said. “But we are not there yet.”

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