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Quite hawkish comments from ECB's Schnabel

15:29 24 November 2022

Isabel Schnabel from the European Central Bank commented on the current monetary policy of the euro area:

  • The price pressure is unlikely to ease quickly. She stressed the risk of opposing monetary and fiscal policies, caused mainly by energy prices;

  • The greatest risk for central banks remains a policy that is poorly calibrated and assumes a rapid fall in inflation. The ECB will have to keep raising interest rates, probably to restrictive levels;

  • The new macroeconomic environment requires a different mix of monetary and fiscal policies. The incoming data so far suggest that the space to slow down the pace of interest rate increases remains limited;

  • An overly expansive fiscal stance should be avoided. Schnabel supported a balanced and predictable approach to QT.

  • Further raising interest rates as long as it is needed to bring inflation back to 2%;

  • There is growing evidence that the pandemic and energy crisis may have more lasting negative effects on current and future production;

  • The wage-price spiral has not yet accelerated, but there is a risk that wages will put additional pressure on inflation.

  • The ECB will closely monitor banks' liquidity as funding costs increase.

Reports from the Fitch agency indicate that the European Commission's forecasts emphasized that fiscal threats to euro area members resulting from the energy crisis will persist in 2023.

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EURUSD bounced off the SMA50 (black line) amid gloomy prospects for the EU economy. Source: xStation5

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