ECB’s Nagel Urges More Rate Hikes and QT in ‘Timely’ Fashion
15 October 2022
By David Barwick – WASHINGTON (Econostream) – European Central Bank Governing Council member Joachim Nagel on Saturday called for multiple interest rate hikes to safeguard euro area price stability and for ‘timely’ quantitative tightening.
In a speech at an event on the margins of the annual meeting of the IMF and World Bank, Nagel, who heads the German Bundesbank, said again that ‘[f]urther interest rate hikes will be needed to bring the inflation rate back to 2% in the medium term – not just at the monetary policy meeting at the end of October, in my opinion.’
The magnitude of coming hikes and the level of the terminal rate will depend on data, but ‘[i]n any case, the ECB Governing Council must not let up too soon’, he said, warning of the heightened risk of a de-anchoring of longer-term expectations.
Such a de-anchoring would imply faster or greater monetary tightening, raising the cost of restoring price stability, he said. ‘This is a scenario that we on the ECB Governing Council absolutely want to prevent’, he said.
The ECB will also have to ‘look into’ reducing its balance sheet ‘in a timely manner’, he said, as this is part of normalisation.
Inflation was subject to ‘significant upside risks’ and ‘could stay elevated for even longer’, he said.
Germany is likely to ‘be hit particularly hard’ by the slower growth of advanced economies, and its economy probably contracted slightly last quarter, he said.
‘The uncertainty surrounding the gas supply is particularly troubling’, he continued. ‘Overall, real gross domestic product could decline significantly in the final quarter of 2022 and the first quarter of 2023. This would imply a recession, that is a significant, broad-based and longer-lasting decrease in economic output.’