MNI BRIEF: Schnabel Says Inflation Must Hit 2%

The European Central Bank will only be satisfied if inflation falls sustainably to 2%, not 2.1%, Executive Board member Isabel Schabel told Suddeutsche Zeitung in an interview published on Friday, but she added that monetary policy should not be overtight.

While the ECB’s determination to restore inflation to target has strengthened its credibility, Schnabel added “people would not be better off if we plunged the economy into years of deep recession just to bring the prices back to their old levels.” (See MNI SOURCES: ECB Needs Sub-3% Core Inflation To Consider Cuts)

Banks that have seen profits soar by lending money at higher rates without passing on higher interest rates on to their depositors would be “well-advised to use these short-term profits to build up a buffer against future losses,” she said. But she cautioned against further raising the ECB’s minimum reserve requirements, a move she said would “disproportionately” affect smaller banks.