Interest rates need to reach ‘restrictive’ level: Schnabel

Bloomberg

European Central Bank (ECB) Executive Board member Isabel Schnabel says interest rates will have to move into “restrictive territory” to bring inflation back to target.
The danger of a policy overreaction by the ECB “continues to be limited, as real interest rates are still very low,” Schnabel said.
Reflecting on the ECB’s string of four interest rate hikes, Schnabel said the central bank is doing “whatever is necessary” to bring inflation back to 2%. She echoed the position of ECB President Christine Lagarde, who has said rate increases will continue “for a period of time.”
“According to our assessment, this interest rate lies in restrictive territory — that is, above the neutral interest rate — even if the exact level is yet unknown,” Schabel said.
With the central bank now pointing to a terminal rate higher than many market participants had expected, “achieving consensus” on the next steps “will certainly not get any easier,” Schabel said.
The Germany policy-maker said the ECB underestimated the persistence of inflation earlier, “and initially did not take the signs of higher inflation seriously enough” as it pivoted from a phase where too-low inflation had been the main risk and pandemic-related uncertainty shadowed policy decisions.