ECB’s Schnabel: Easing too much would use up valuable policy space

• We can gradually move toward neutral if incoming data continues to confirm our baseline
• We may not be so far from the neutral rate
• Markets seem to assume that we will need to move into accommodative territory
• But I don’t think such a step would be appropriate based on current conditions
• Has a strong preference for a gradual approach
• The costs of moving into accommodative territory could be higher than the benefits

This just mostly points to a 25 bps rate cut more than anything else as she dismissed the likelihood of moving faster by saying she would prefer something more “gradual”. As things stand, traders are still favouring a 25 bps rate cut for next month with the odds of that seen at ~71% currently.

This article was written by Justin Low at www.forexlive.com.