ECB official urges rate hikes to fight inflation

Isabel Schnabel, a member of the Executive Board of the European Central Bank, confirmed that interest rates need to rise further to confront the rising risks of inflation resulting from ongoing conflicts in the Middle East and increasing energy costs. She pointed out that inflation growth could exceed 2% for an extended period, necessitating additional tightening of monetary policy to prevent second-round effects on inflation, especially given the flexibility of aggregate demand in the European market. Although the European economy shows increasing strength, the rise in inflation to 2.9% in July raises concerns about the sustainability of inflation, particularly with the deterioration of natural gas storage levels, which poses upside risks to future inflation. She forecasted that the need for further rate hikes will depend on upcoming economic data, with gradual increases possible until spring 2027, while markets continue to anticipate potential increases to 2.5% or higher.

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