ECB’s Isabel Schnabel Urges June Rate Hike Regardless of Middle East Conflict Resolution

The European Central Bank should raise interest rates in June even if the conflict in the Middle East is quickly resolved, Executive Board member Isabel Schnabel told Reuters, underscoring a more hawkish view inside the ECB as policymakers debate how far inflation risks have eased. Her comments come as other central bankers across Europe and beyond are weighing whether to keep policy tight, pause, or begin easing in response to slower growth and shifting inflation pressures.

Schnabel’s position stands in contrast to more cautious voices at the ECB. Governing Council member Yannis Stournaras said the central bank must avoid an overly restrictive policy that could further weigh on economic activity and investment, highlighting the tension between fighting inflation and supporting a fragile economy. Together, the remarks show that the ECB is still divided over how quickly it should move, even as investors look for signals about the next meeting.

The debate is being shaped in part by energy markets and the potential economic fallout from the Middle East conflict. Schnabel’s argument suggests that even if energy prices stabilize, the ECB should not delay a rate increase if it believes inflation remains too high or too persistent. That view reflects a broader concern among some policymakers that temporary relief in commodity prices should not be mistaken for a durable return to price stability.

Elsewhere, central banks are taking different approaches under similar pressures. New Zealand’s central bank is expected to hold rates and remain in “wait and see” mode, while Israel cut rates by a quarter point and faced pressure to do more. In Europe, Czech Prime Minister urged a rate cut even as inflation risks rise, and Hungary is expected to hold rates with a June cut still possible. The mix of decisions shows how sharply monetary policy is diverging as countries balance inflation, growth, currency moves, and energy shocks.

The ECB’s June meeting will therefore be watched closely by governments, businesses and households across the euro zone, where borrowing costs influence mortgages, business investment and consumer demand. For policymakers, the question is whether inflation has slowed enough to justify patience or whether another hike is needed to keep price pressures contained.