Last week, the ECB raised rates for the fourth consecutive time, leading to a reaction from the Italian government and causing investors to expect the deposit rate, currently at 2%, to rise to 3.4% next year. Schnabel, a leading member of the ECB's hawkish camp that has supported the recent string of hikes, suggested that the deposit rate could be increased even more if the inflation outlook requires it. She emphasized that the ECB will focus on medium-term inflation expectations rather than current readings and does not see a risk of raising borrowing costs too high, given that real interest rates are still very low.
Italian Government Criticizes ECB's Recent Interest Rate Hike
Three top Italian ministers have expressed their opposition to the European Central Bank's (ECB) decision to raise interest rates last week. The move caused borrowing costs for debt-laden Italy to increase and prompted a backlash from the Italian government. Despite the criticism, ECB policymaker Isabel Schnabel argued that the central bank should weather the pressure and maintain its independence. Schnabel emphasized that the ECB will focus on medium-term inflation expectations rather than current readings and does not see a risk of raising borrowing costs too high, given that real interest rates are still very low.
ECB Policymaker Emphasizes Importance of Central Bank Independence
ECB policymaker Isabel Schnabel has emphasized the importance of central bank independence in the face of criticism from the Italian government over the recent interest rate hike. Schnabel, a leading member of the ECB's hawkish camp that has supported the string of hikes, argued that the ECB should be prepared to take the heat and raise rates further if necessary to bring down inflation. She emphasized that the ECB will focus on medium-term inflation expectations rather than current readings and does not see a risk of raising borrowing costs too high, given that real interest rates are still very low. Schnabel urged the ECB to withstand the pressure and maintain its independence, stating that "that's exactly why central banks are independent."
