ECB Faces 'Passive Policy Easing' Dilemma Amid Market Turbulence

The European Central Bank is considering future interest rate hikes to avoid passive policy easing. Despite a recent drop in deposit rates, market dynamics and external factors, like US trade policies, are influencing euro interest rates. There's a growing consensus not to react hastily to inflation deviations.

The European Central Bank (ECB) is grappling with the potential of 'passive policy easing' as they consider future interest rate hikes to maintain economic stability. Recent comments by board member Isabel Schnabel suggest an inclination towards raising rates, emphasizing the risk of policy drifting if rates remain unchanged for too long.

This year has brought unusual circumstances for the ECB. Despite a drop in its main deposit rate, external influences like US trade tensions and Germany's fiscal initiatives have swayed euro interest rates. Headline inflation hovers just above 2%, close to the euro zone's long-term neutral rate, keeping the policy rate near zero.

While the ECB is in no rush to modify rates, it's cautious of structural shifts in the global economy, such as advancements in AI and public investment. Economists warn that without action, the ECB's policy might become too accommodative, potentially stimulating the economy beyond the desired levels.

(With inputs from agencies.)