ECB/Schnabel: Caution Required on Interest Rate Cuts

According to Isabel Schnabel, a member of the ECB Governing Council, the European Central Bank should be cautious about lowering interest rates too much. Schnabel stated, "The cost of borrowing is approaching a level that can no longer rein in the economy, and going even lower could backfire." She mentioned that authorities could continue to ease monetary policy but should do so gradually to avoid pulling interest rates below what is referred to as the neutral threshold.

Warning that excessive easing could waste valuable policy space, Schnabel said, "Given the inflation outlook, I believe we could gradually move towards the neutral level if incoming data continues to validate our baseline." Estimating the neutral level, which is not definitively measurable for interest rates, to be between 2% and 3%, Schnabel indicated that this range is higher than what more dovish officials, such as Yannis Stournaras from Greece and Mario Centeno from Portugal, have suggested. She noted that with the deposit rate remaining at 3.25% following three quarter-point cuts made this year, "we may not be very far from that level right now."