Published by Global Banking & Finance Review®
Posted on June 12, 2025
2 min readLast updated: January 23, 2026
Add as preferred source on GoogleECB's Schnabel affirms current monetary policy is strong, with inflation expected to return to the 2% target medium-term despite temporary dips.
BRUSSELS (Reuters) -European Central Bank interest rates are in a "good place" now, despite an expected slowing of inflation, because price growth is likely to return to the ECB's target of 2% over the medium term, ECB's Executive Board Member Isabel Schnabel said.
Schnabel told a seminar the expected slowing of euro zone inflation, which the ECB forecasts at 1.6% in 2026 against 1.9% last month, was a temporary phenomenon, due to energy price base effects and the stronger euro exchange rate.
"Inflation is projected to get below 2% over the short term, and this is to a large extent driven by energy and the exchange rate," Schnabel said. "But we also see that inflation is projected to return to 2% over the medium term."
"Core inflation never really moves away from 2%. And this is why we're actually quite comfortable about that. And when you look at inflation expectations, they're actually standing above 2% if you look at consumers or firms," she said.
The ECB has cut rates eight times over the last year, most recently on June 5, setting the deposit rate at 2%, but some investors expect the bank to make one more cut to 1.75% before the end of the year.
Schnabel, seen as one of the ECB's policy hawks, said that after many years of above-target inflation there was no real concern that inflation expectations could be de-anchored to the downside, below the bank's 2% target.
"That is, for me, a very clear case of looking through temporary deviations of headline inflation from target. So I think in such a situation, where inflation expectations are pretty well anchored, we can look through or can tolerate such moderate deviations from target," she said.
(Reporting by Jan StrupczewskiEditing by Gareth Jones)
Schnabel indicated that inflation is projected to fall below 2% in the short term, primarily driven by energy prices and exchange rates.
The ECB has cut rates eight times over the past year, with the most recent cut occurring on June 5, setting the deposit rate at 2%.
The ECB aims for an inflation target of 2%, and Schnabel expressed confidence that inflation expectations remain anchored above this target.
The expected slowing of euro zone inflation is attributed to temporary factors such as energy price base effects and the exchange rate.
Schnabel believes that after years of above-target inflation, there is no real concern about inflation expectations being de-anchored to the downside.
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