By Leika Kihara
WASHINGTON, April 15 (Reuters) – The European Central Bank is in a “relatively favorable” position on monetary policy after having successfully brought down inflation to 2% before the war in the Middle East started, ECB board member Isabel Schnabel said on Wednesday.
“We have a monetary policy stance that is broadly neutral and this means we can afford to take the time that is needed to analyze the character of this shock. We do not need to rush into action,” she said during a panel at the Institute of International Finance in Washington.
The current energy shock is particularly problematic because it has occurred after a very long period of above-target inflation, keeping memories of high inflation very fresh in the public’s mind and inflation expectations more fragile, she said.
As a net energy importer, however, the euro zone economy may weaken from rising fuel prices, making it harder for firms to pass through costs or for workers to negotiate higher pay, Schnabel added.
“We have to weigh our policy decisions very carefully and see which … prevails. We have to stay data-dependent. We have to think very carefully which data can give us information that inflation could become entrenched, and there could be second-round effects,” she said.
But the ECB must also avoid imposing an “unnecessary cost” on the economy through premature monetary tightening, she said.
(Reporting by Leika Kihara; Editing by Paul Simao)
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