U.S. Markets

Rate hike would be devastating: ECB's Schnabel

FILE PHOTO: Isabel Schnabel, member of the German advisory board of economic experts attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski/File Photo

BERLIN (Reuters) - Raising euro zone interest rates in the current environment would have a devastating impact, European Central Bank board member Isabel Schnabel said on Sunday, adding that temporary spikes in inflation should not be confused with a trend.

Schnabel was responding to a question in a German public radio interview about how long savers would have to wait for an end to the bank’s zero rates policy.

“I can’t say when a rate increase will come, but what I can say is that a hike in the current environment would have a devastating impact and nobody should want that,” she said.

Schnabel said one-off effects including the end of Germany’s VAT cut and a base effect from energy costs were likely to cause a rise in inflation later this year. But that should not be confused with a sustained rise in inflation, she added, not least because of the difficulties of measuring inflation during lockdowns, when purchasing habits were so different.

Reporting by Thomas Escritt; Editing by Catherine Evans