Q&A on Twitter

Interview on Twitter with Isabel Schnabel, Member of the Executive Board of the ECB, conducted and published on 9 February 2022

9 February 2022

Hello, this is @Isabel_Schnabel, Executive Board member at the ECB. I’m looking forward to answering your questions for the next 45 minutes or so. Join the conversation! #AskECB

Can you explain the main mechanism by which raising rates would lower energy prices?

@Isabel_Schnabel: Raising rates would not lower energy prices. But if high current inflation threatens to lead to a de-anchoring of inflation expectations, we may still need to respond, as our mandate is to preserve price stability. #AskECB

Following your 08.01.22 communication on green transition & inflation (one more communication masterpiece – thank you so much for doing it!), are there any further developments on this front that you may share?

@Isabel_Schnabel: Thank you for your kind words. The implications of the green transition for inflation are very important for monetary policy. We are currently working intensively on various topics related to climate change. Have a look: https://ecb.europa.eu/ecb/climate/html/index.en.html #AskECB

My speech on monetary policy and green transition is available here: https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220108~0425a24eb7.en.html

#AskECB Is inflation always a monetary phenomena?

@Isabel_Schnabel: The empirical link between money growth and inflation has weakened over recent decades. Inflation developments depend on the transmission of policy measures to the real economy, which hinges, for example, on the state of the banking sector. #AskECB

Wer garantiert die Unabhängigkeit der @ecb @Isabel_Schnabel? #AskECB

@Isabel_Schnabel: Die Unabhängigkeit der EZB wird durch die europäischen Verträge garantiert. Gemäß Artikel 130 AEUV darf die EZB keine Weisungen der Politik einholen oder entgegennehmen. Read more: https://ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/ecb_independent.de.html #AskECB

The ECB’s independence is guaranteed by the European Treaties. According to Article 130 TFEU, the ECB must not seek or take instructions from governmental bodies. Read more: https://www.ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/ecb_independent.en.html

Has ECB to follow capital keys in PEPP reinvestments? #AskECB

@Isabel_Schnabel: Asset purchases under the PEPP are guided by the ECB’s capital key. In the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time. #AskECB

Some people believe that in the current situation, raising interest rates would help fight inflation. In your opinion: If current inflation is strongly driven by energy prices, why would an increase in interest rates help?

@Isabel_Schnabel: Monetary policy has to keep a watchful eye on all factors, including energy, that affect the medium-term inflation outlook. An extended period of high energy price inflation may lead to expectations of higher inflation in the future. #AskECB

#AskECB Is the ECB thinking about how to tighten the monetary policy stance in a way that it actually makes us less dependent on fossil fuels and thus strengthen price stability for the long term? For instance like this https://energymonitor.ai/finance/banking/the-ecb-can-help-fix-the-energy-price-crisis-play-the-long-game

@Isabel_Schnabel: Our economies will benefit from a faster transition to renewable energy sources. This is mainly the responsibility of governments. But we are committed to doing our part, which will be reflected in our monetary policy operations. #AskECB

Read more about our roadmap on greening our monetary policy, which was published as an outcome of our strategy review: https://ecb.europa.eu/ecb/climate/roadmap/html/index.en.html. #AskECB

#AskECB: Is the high inflation transitory?

@Isabel_Schnabel: Inflation will remain high for longer than anticipated. There is a risk that inflation continues to rise in the near term but it is likely to gradually decline towards the end of this year. There remains high uncertainty around the inflation outlook. #AskECB

#AskECB Why do you think "this time is different" i.e. no need for Volker's approach to hike 100% above CPI? Or do we need double digit first?

@Isabel_Schnabel: In the 1970s rising oil prices triggered a harmful price-wage spiral, as inflation expectations drifted away. Today longer-term inflation expectations are well-anchored. We will ensure that high inflation does not become entrenched. #AskECB

#AskECB Do you think that inflation prediction models of the ECB are accurate? If not, is there any plan to fix it out? Do you think, that ECB is a trustworthy institution because of that?

@Isabel_Schnabel: Projections are always surrounded by uncertainty. But due to the pandemic and structural changes, the uncertainty around the inflation outlook is unusually high. You can trust us that we will take this uncertainty into account in our decision-making. #AskECB

Why is price stability the goal, if we could have prices decreasing?

@Isabel_Schnabel: Persistently falling prices may depress the economy because consumption and investment will be delayed as households and firms wait for lower prices. Read more: https://ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/stableprices.en.html. #AskECB

When will you buy #Bitcoin? #AskECB

@Isabel_Schnabel: Bitcoin is a speculative asset. The high volatility of its price makes it unsuitable as a store of value. #AskECB

Was ist das oberste Ziel der EZB?

@Isabel_Schnabel: Unser oberstes Ziel ist es, stabile Preise zu gewährleisten. Dabei streben wir mittelfristig eine Inflationsrate von 2% an. Seit seiner Einführung betrug die durchschnittliche Inflation im Euroraum 1,7%. #AskECB

Our primary objective is price stability. This means an inflation rate of 2% over the medium term. Since the introduction of the euro, average inflation in the euro area has amounted to 1.7%. #AskECB

Since central bankers, including the ECB, have repeatedly commented that they want to look through transitory spikes in inflation, do you think that looking through transitory phases of deflation is equally desirable? #AskECB

@Isabel_Schnabel: Transitory supply shocks drive inflation and growth in opposite directions. That’s why central banks can usually look through their impact on inflation, both for upside and downside deviations from target. Our target is symmetric. #AskECB

Are you planning on further increasing the EU Housing bubble so I can never buy my own House?

@Isabel_Schnabel: House prices have risen strongly in the euro area, and monetary policy was one contributing factor. Macroprudential policy is the first line of defence but monetary policy needs to take financial stability and inequality considerations into account. #AskECB

Read my speeches on how monetary policy may deal with financial stability and with inequality: https://ecb.europa.eu/press/key/date/2021/html/ecb.sp211208_2~97c82f5cfb.en.html

Dear @Isabel_Schnabel at which level would treasury yields and intra-EMU spreads be without the bond buying programs of the ECB? Do you see any kind of “fiscal dominance”? #AskECBhttp://ow.ly/qm1u50Ac4lS (German version: http://ow.ly/RSd950zpe1I)

@Isabel_Schnabel: ECB simulations show that the stock of assets acquired under APP and PEPP will put sizeable downward pressure on interest rates across the maturity spectrum for the years to come. Our actions are firmly geared towards our price stability objective. #AskECB

#AskECB The ECB has done a great job with its PEPP during the pandemic. Now, government bond yields in Spain, Italy and Greece are on the rise. What will the @ecb do to ensure that we do not repeat the Eurocrisis? Thank you.

@Isabel_Schnabel: The euro area architecture is more resilient than it was at the time of the sovereign debt crisis, not least due to Next Generation EU which supports convergence across countries. The ECB has proven its willingness to act, if needed and as appropriate. #AskECB

#AskECB - How would you explain the divergence in tone between the latest official statement and the communication delivered by C. Lagarde? To what level will the ECB accept the "cost of transition" towards normalization without affecting EZ financial conditions?

@Isabel_Schnabel: The monetary policy statement contained important changes regarding the upside risks to inflation and the need for optionality. The process of normalisation will be data-dependent and gradual, avoiding unnecessary disruptions. #AskECB

#AskECB When discussing the future of monetary stance, does the Governing Council consider the movements of the yields? After the last ECB conference, which had a relatively hawkish stance, the IT 10-y surged by 19 bps & the Bunds climbed by 13 bps. The spread widens by 147 bps.

@Isabel_Schnabel: Financing conditions must remain in line with inflation stabilising at our target over the medium term. We also need to ensure that our policy is transmitted to all parts of the euro area. Therefore, yields are an important input into our analysis. #AskECB

Would ECB finally act on soaring inflation, high energy prices in the euro area or only protect stock markets?

@Isabel_Schnabel: Our primary objective is price stability. We are ready to adjust all our tools to make sure that inflation stabilises at our 2% objective over the medium term. But any adjustment to our policy will be gradual. #AskECB

How successful would you say is the ECB in explaining the pillars of its policy to the wider public? To what extent do you see it as the ECB‘s task to explain its policy to the wider public?

@Isabel_Schnabel: In order to preserve trust among the general public, which is a prerequisite of successful monetary policy, we need to explain our policies in simple and accessible terms. We strive to continuously improve our communication towards the general public. #AskECB

Is there is a danger that measures on the balance sheet could renew financial fragmentation through asymmetric developments in monetary and financial conditions across the Eurozone? If yes, does it make sense to change the sequencing of envisaged monetary policy measures?

@Isabel_Schnabel: The pandemic has shown that, under stressed conditions, flexibility in the conduct of asset purchases can help to counter fragmentation. Therefore, flexibility will remain an element of our monetary policy during the PEPP reinvestment phase. #AskECB

Are euro area sovereign yield spreads a bug or a feature? #AskECB @Isabel_Schnabel

@Isabel_Schnabel: Sovereign spreads are a feature as long as they are reflecting economic fundamentals. They are a bug when they become subject to destabilising self-fulfilling expectations, impairing monetary policy transmission. #AskECB

President Lagarde said today following a question from CNBC that "we will look at the impact of inflation and its impact on projections in more depth in March, something we have not done so far" My question does the ECB really have no scenario with high inflation and its impact?

@Isabel_Schnabel: Our monetary policy is data-dependent. We continuously analyse different scenarios. A full projection of economic developments is done only four times a year, with the next round being concluded in March. #AskECB

#AskECB How does it come that you still expect inflation to fall below target over the medium term when we see non-financial companies expecting wage increases of "3 percent or more this year" and upcoming inflationary pressure of carbon prices? #wagepricespiral

@Isabel_Schnabel: Staff forecasts are going to be updated in March. What matters for inflation is the growth in wages over and above productivity growth. We carefully monitor wage developments as they are crucial for the inflation outlook. #AskECB

#AskECB If the economy is in a great place why are interest rates zero or negative?

@Isabel_Schnabel: Negative rates reflect the low inflation environment before and at the beginning of the pandemic. Our policy is data-dependent. We continuously evaluate the monetary stimulus required for inflation to stabilise at our 2% target in the medium term. #AskECB

Do you think that the ECB is at risk of loosing its reputation as a well-functioning European institution as it's not able to fulfill its goal to protect EU citizens of the current inflationary development? #AskECB Thank you for offering this format!

@Isabel_Schnabel: We take people’s concerns about rising prices very seriously. You and all EU citizens can trust us that we will use all our instruments to stabilise inflation at our 2% target in the medium term. #AskECB

Bundesbank President Nagel says that "the costs of acting too late are significantly higher than acting early", the exact opposite of what ECB Board member Fabio Panetta said last year. The hawks need to explain what tighter policy will achieve in a supply shock. #AskECB

@Isabel_Schnabel: We need to minimise the risks of both – acting too late and acting too early. Besides supply shocks, we have to assess the strong developments in the labour market and their implications for medium-term inflation. #AskECB

What’s the ECB’s current position about Euro cash and are you doing anything to stop the eurozone countries reducing even further the limits on the use of cash? The cash limit in Italy is currently 1.000 euro. #AskECB

@Isabel_Schnabel: Cash will stay an important way to pay and it is also a tangible symbol of European integration. We all use it almost every day. Limits on the use of cash are the responsibility of national governments. #AskECB

Following scenario: A land with the euro is inside of a wage price spiral, while all other lands arent, so the inflation only escalates in one land. what would the ecb do?

@Isabel_Schnabel: Our monetary policy is guided by developments in the euro area as a whole. But it is important to analyse heterogenous country developments to understand how our policy is affecting different parts of the euro area and to adjust our tools if needed. #AskECB

#AskECB And now you say you are data dependent, Why is the sequence so important that you can not deviate., as you don’t know what the data, that you say you depend on, will show.

@Isabel_Schnabel: According to the announced sequencing, we will end net asset purchases before we raise interest rates. Continued bond purchases would offset part of the impact of increasing policy rates. Moreover, asset purchases come with increasing costs. #AskECB

See my speech on the changing role of asset purchases: https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210920~ae2c7412dc.en.html

#AskECB In light of the need to furher strengthen euro's architecture and enhance 'monetary peace' within the eurozone, when does the ECB plan to implement the third pillar of the banking union (European Deposit Insurance Scheme – EDIS)?

@Isabel_Schnabel: A European Deposit Insurance Scheme is an important – and still missing – part of banking union. It would enhance financial stability and increase trust in the banking system. However, this is not up to the ECB but to the EU and its member states. #AskECB

Define “transitory”. #AskECB

@Isabel_Schnabel: Due to lags in policy transmission “transitory” shocks typically do not require policy action. They matter for monetary policy when there is a risk that they become entrenched in expectations, requiring policy action to protect price stability. #AskECB

How much of current European inflation is due the big stimulus earlier last year in America? Did that lead to the higher energy prices in China and the rest of the world?

@Isabel_Schnabel: One reason for rising oil prices was the stronger-than-expected recovery across many economies, with demand outpacing supply. The large fiscal stimulus in the US was one factor driving the global recovery. #AskECB

In the eventuality of a policy tightening, will the ECB carry out a proportionality test to evaluate the relative impact of an interest rate hike on the cost of transition energy sources vs. fossil fuels investments? #AskECB

@Isabel_Schnabel: According to our climate action plan, we will include climate change considerations into our monetary policy. Changes will apply to monetary expansion as well as to tightening. Our actions will continue to be guided by our price stability objective. #AskECB

How is ecb adressing the endogeneity problem between inflation expectations and exogeneous shocks which are out of central banks control? How is ecb preventing a potential unanchoring of inflation expecations?

@Isabel_Schnabel: If there is a risk that inflation expectations become unanchored, we need to take action even if the shock is exogenous. Currently, longer-term inflation expectations remain well-anchored. #AskECB

#AskECB Prognosis models 2% Inflation by the end of Q4 '22. We are in an unprecedented economic situation. Models have been wrong in the recent past. Q: What are the planned actions if Inflation stays well above target?

@Isabel_Schnabel: Due to the pandemic and structural changes in the economy, uncertainty around the inflation outlook is unusually high. If we judge that inflation will remain above our target over the medium term, the ECB will adjust its monetary policy, as appropriate. #AskECB

With inflation rates well above the target, why are you still continuing to buy bonds? #AskECB

@Isabel_Schnabel: The economy is recovering. The progress made towards our 2% inflation target over the medium term permits a step-by-step reduction in our asset purchases. We will reassess the implications of the incoming data for the inflation outlook in March. #AskECB

Why you said on the German news 1 month ago that " this Inflation is good , we want more Inflation " ??

@Isabel_Schnabel: For a long time euro area inflation was below our target but it is now moving towards 2% in the medium term. Current inflation is painfully high – mostly due to high energy prices. We will ensure that it will not persist over the medium term. #AskECB

#AskECB. thank you for answering our Qs today. Here is a statement from @Lagarde yesterday. Does that mean @ecb is giving up its price stability mandate & sees no issue with the lower-income being hurt the most? Are there any plans to take action?

@Isabel_Schnabel: We know that high inflation causes significant hardship for people who bear the rising costs of food, housing and transportation. We will make sure that inflation stabilises at our 2% target over the medium term. #AskECB

Why is the ECB adjusting so slowly and flexibly to the high inflation compared to the instant, unprecedented and persistent adjustment in policy at the onset of Covid? The deviation from inflation target is far larger now and is hurting consumers more at the same time. #AskECB

@Isabel_Schnabel: Inflation has risen mainly due to energy prices which we cannot affect directly. But we are seeing that inflationary pressures are broadening and becoming more persistent. Policy optionality is therefore more important than ever. #AskECB

Do you think TLTROs are still a useful tool for guaranteeing a correct transmission of monetary policy? #AskECB

@Isabel_Schnabel: TLTROs remain an attractive source of funding for banks, supporting lending to firms and households. We will continue to monitor bank funding conditions and ensure that the maturing of operations does not hamper the transmission of our monetary policy. #AskECB

when you calculate the inflation rate - how much do you look at the ongoing conflict in Ukraine and the potential disruption it could cause? #AskECB

@Isabel_Schnabel: Geopolitical developments are part of our risk assessment, especially if they affect energy prices and growth. Our upcoming Economic Bulletin looks at the dependence on natural gas in the euro area and the related risks to economic activity. #AskECB

1: What is money? 2: Are there good or bad money? And what is the difference between good and bad money? #AskECB

@Isabel_Schnabel: Money is a medium of exchange, a unit of account and a store of value. “Good” money fulfils all three functions. The euro is “good” money: it enjoys high trust in the euro area and beyond. Read more: https://ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/what_is_money.en.html #AskECB

Time to wrap up. Thanks a lot for your questions – I really enjoyed the chat and look forward to doing this again soon. Take care! #AskECB