ECB’s Isabel Schnabel believes interest rates should be kept at current levels

The European Central Bank (ECB) board member Isabel Schnabel believes the bank should keep borrowing costs at the current level. The official says interest rates are no longer restricting EU’s GDP growth, while global economy turmoil is fuelling price pressures. In the medium term, the inflation rate may exceed the ECB’s target of 2%. 

Schnabel notes that the EU consumer price index could fall below the European regulator's target level in the near future amid cheaper energy, a stronger euro, and weaker economic growth.

However, in the medium term, inflation could be boosted by increasing government spending, driven by Germany’s intention to direct more investments to defense and infrastructure.

Additionally, global trade fragmentation, caused by the US administration's tariff policies, could also raise costs and prices. Higher production costs, in turn, offset the disinflationary pressure of duties, Schnabel says.

Meanwhile, financial markets estimate the probability of a rate cut at the ECB meeting in June at 90%, Reuters reports.