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Markets may be overestimating Delta's impact on growth - ECB's Schnabel

EconomySep 15, 2021 09:33AM ET
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2/2 © Reuters. 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 2/2

FRANKFURT (Reuters) - Real interest rates are puzzlingly low around the world, European Central Bank board member Isabel Schnabel said on Wednesday, arguing that investors may be overestimating the impact of the Delta variant of the coronavirus on the economy.

With governments and central banks unleashing record stimulus to revive growth after the pandemic, real rates on both sides of the Atlantic would be expected to rise, especially since stocks are soaring, Schnabel, the head of the ECB's market operations, said.

"The market may be overestimating the risks to the global growth outlook from the spread of the more contagious Delta variant," she said.

"Delta variant has many characteristics of a genuine supply-side shock, raising prices and lowering output," she added. "But market analysts’ growth expectations suggest that this shock is widely perceived as being short-lived."

Copious asset purchases by central banks also keep a lid on real rates but in case of the euro zone, the ECB's new strategy could be part of the explanation, she added.

The bank unveiled a new inflation target earlier this summer and made it clear that it would not tighten policy until it saw more decisive progress in boosting inflation, a hint that ECB policy will be ultra easy for years to come.

"This will imply a more patient reaction function," she said. "The market may have started internalising our new forward guidance, especially regarding the conditions that we need to see to start raising policy rates.

Markets may be overestimating Delta's impact on growth - ECB's Schnabel
 

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Roger Miller
Roger Miller Sep 15, 2021 10:26AM ET
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The market over estimated the central planners abilities to repair the damage caused by governments response to the virus.
 
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