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Title: Euro zone business growth got boost from reopened services in April – PMI

May 04, 2022 04:36AM ET

By: AnalysisWatch

Another senior member of the European Central Bank has opened the door to a first interest rate hike in July, warning that further rate increases are needed to prevent inflation from becoming entrenched in the eurozone.

From today's perspective, a rate hike is not out of the question, according to Isabel Schnabel, a member of the ECB's six-member executive board at its Frankfurt headquarters, told Handelsblatt. From today's perspective, I think a rate hike in July is possible "as inflation spreads more broadly across the economy."

According to Eurostat, core inflation rose to 3.5% in April, excluding food and energy prices, which are prone to fluctuations.

The ECB has so far been reluctant to tighten monetary policy as the war in Ukraine has brought new threats to economic growth, although the pandemic and related strain on regional supply chains appear to be easing. Germany announced Wednesday that its exports to Russia fell 62% in March, the first full month of the war.

Schnabel pointed out that more rate hikes will be needed quickly to bring down inflation, citing studies showing that the ECB's "neutral" level is well above zero.

In contrast, the ECB's deposit rate is -0.5%.

The ECB has said it plans to end its policy of net asset purchases, or quantitative easing, by the end of the quarter.

Schnabel adhered to the ECB's guidance that interest rates should not be raised until after that.

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