ECB’s Nagel: Expect Net Asset Purchases to End in June, To Advocate First Rate Hike in July
10 May 2022
By David Barwick – FRANKFURT (Econostream) – Net asset purchases by the European Central Bank should end in June and be followed by a first rate hike in July, ECB Governing Council member Joachim Nagel said Tuesday.
In a speech at the International Economic Symposium, Nagel, who heads the German Bundesbank, said that ‘the Eurosystem must ensure that the current elevated inflation does not become entrenched and persist at an excessively high level over the medium term.’
High uncertainty implies that ‘adjustments should be gradual’, he said, but also that ‘we should not delay the exit from the very accommodative monetary policy, since a less expansionary monetary policy stance provides the most flexibility.’
Worries that normalising too soon would induce a relapse into lowflation had diminished, he said, whereas the risk of deferring normalisation was ‘increasing notably.’
‘As inflation in the euro area continues to run high, we need to act’, he said. ‘I expect the net purchases under the APP to be discontinued at the end of June. And if both the incoming data and our new projection confirm this view in June, I will advocate a first step normalising ECB interest rates in July.’
A delay, he suggested, could ultimately require ‘a very strong and abrupt interest rate hike’, which would be undesirable.