MNI BRIEF: ECB May Need To Act "More Forcefully"-Schnabel

The European Central Bank is still “very far” from claiming victory on inflation, Executive Board member Isabel Schnabel said in an interview Friday, adding that a broad disinflation process has “not even started” in the euro area.

A rate hike of 50bps in March - when the ECB could give an "idea about the direction of travel" - is necessary under virtually all scenarios, Schnabel said, adding that she would need proof policy was becoming restrictive via lending, labour markets and aggregate demand before voting to reduce the pace of tightening to 25bps in May. Demand may be less sensitive to changes in interest rates, she said, adding “we may have to act more forcefully if transmission turns out to be weaker.”

Wage increases will be key to determining the path of underlying inflation over the medium-term, Schnabel said, and are expected to be in the region of 4 to 5% over the next few years.