ECB must be ready to take the heat and raise rates more, Schnabel says


FRANKFURT, Dec 24 (Reuters) – The European Central Bank must be prepared to take the heat and raise interest rates further, including more than markets expect, if necessary to lower inflation, ECB chief Isabel Schnabel said in an interview. posted on saturday

The ECB raised rates for the fourth time in a row last week and announced more hikes, shaking eurozone bond markets and prompting a backlash from the Italian government.

Investors now expect the rate the ECB pays on bank deposits, currently 2%, to rise to 3.4% next year, compared to a peak of 2.75% before last week’s decision.

Schnabel, the main voice of the ECB’s black camp, which has pushed for recent hikes, opened the door to raising the deposit rate even more than the market expects if the inflation outlook warrants it.

“Whether we have to go higher than that or not will depend on future inflation forecasts,” he told Germany’s Frankfurter Allgemeine Zeitung newspaper.

He added that the ECB will focus on medium-term inflation expectations, rather than current readings, and that he saw little risk of borrowing costs rising too much today, as real interest rates are still very low.

Italy’s three top ministers have criticized the ECB’s latest decision, which saw debt-ridden Italy’s borrowing costs rise.

Schnabel said that the ECB must resist the pressure.

“We expect the head to get bigger and we have to keep it up,” he said in the interview. “That’s precisely why central banks are independent.”

Reporting by Francesco Canepa; Edited by Philippa Fletcher and Hugh Lawson

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