FRANKFURT – European Central Bank (ECB) board member Isabel Schnabel has warned against cutting interest rates too aggressively, saying that doing so would not address the economy’s deep-seated structural issues.
Schnabel’s comments come as investors expect the ECB to cut interest rates at its upcoming meetings, with some predicting a rate cut to as low as 1.75% by the end of 2025. However, Schnabel believes that such a move would be overly accommodative and could squander valuable policy space for future action.
According to Schnabel, the ECB should aim for a neutral interest rate level, neither stimulating nor slowing down economic growth. She believes that the current inflation outlook does not warrant a significant risk of undershooting the target, and therefore does not require an aggressive monetary policy response.
Schnabel also expressed her view that there is no significant risk of a recession in the euro zone, and that some signs of a consumption-led recovery could underpin the bank’s narrative for a modest recovery.
