Geoffrey Smith 

Investing.com — A top European Central Bank executive opened the doors to an initial interest rate increase in July, and warned that it will take more to prevent inflation from becoming entrenched within the Eurozone. 

Isabel Schnabel, a member of the ECB’s six-person board at its Frankfurt HQ, told the German newspaper Handelsblatt that: “From today’s perspective, a rate increase in July is possible in my view,” owing to the fact that inflation has started to spread more broadly through the economy. Eurostat reported that core inflation (excluding volatile food prices and energy prices) rose to 3.5% last April.

Although the ECB appears to be reluctant to loosen monetary policy in the face of the new threats to economic growth posed by war in Ukraine, the ECB’s stance on monetary policy has not been influenced. Germany announced Wednesday that its March exports to Russia dropped 62%, in the first month of war.

Schnabel, however, agreed with those who suggested that the central banks need to change gears. 

Talking alone is insufficient, it’s time to get active,” she stated, adding that “it can be certain that wage demand will rise if inflation stays high for such a long duration.” It is important to stop high inflation becoming too much a part of our expectation.

Schnabel was a comparatively dovish German voice, when she joined the bank as a 2019 member. This support provided much-needed assistance to the ECB Germany in Germany. The aggressive use of asset purchases and negative interest rates has been widely criticized for punishing savers.

This interview shows that she is more concerned about inflation than ever. 

Schnabel stated that additional interest rate increases will be required quickly to reduce inflation. He referred to research that clearly shows that the ECB’s neutral level is well above zero. However, the ECB’s current deposit rate stands at -0.5%.

According to the ECB, it will end the policy of quantitative easing or net asset purchases by the close of quarter. Schnabel remained true to the ECB’s advice that rates shouldn’t rise until then.

By 5AM ET (0900 GMT), it had increased 0.2% to $1.0524. Schnabel’s remarks on Monday were overshadowed today by an EU announcement that Russia will cease imports of refined oil and petroleum products at the end of this year.