ECB: Schnabel Plays Down PMI Impact, Warns Against Accommodative Stance

ECB Executive Board member Schnabel sought to play down the impact of the weak November flash PMIs in her hawkish-leaning interview with Bloomberg. She noted that the data wasn’t too surprising, echoing sentiment from her hawkish counterpart Nagel last Friday.

• While not explicitly signalling a preference for the upcoming December decision, Schnabel said she had a “strong preference for a gradual approach”. This seemingly supports the case for a 25bp (rather than a 50bp) cut next month.
• Schnabel assesses the neutral interest rate to lie between 2 and 3%, and warned against bringing policy to an accommodative level (i.e. 2%). She seems to favour the ECB keeping “valuable policy space” free to respond to future shocks, where monetary policy would be more effective (i.e. caused by cyclical rather than structural weakness).
• She joined Executive Board counterparts de Guindos and Lane in pushing back against the use of forward guidance, seemingly cementing the case for the “data-dependent and meeting-by-meeting” approach to remain in the December policy statement – as reported by the MNI Policy Team at the start of this month.
• Finally on the prospect of US tariffs, Schnabel noted there was not enough information to make an assessment yet. Still, she said that tariffs would bring downside risks to economic growth, but that the inflation impact is “more complicated”. 

Table 1: ECB-dated OIS Implied Cuts