ECB’s Nagel: I’m Not Calling for a Rate Move of any Particular Size
22 November 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Monday reiterated his call for further decisive monetary policy action, but indicated that he was not seeking a December rate hike of a particular magnitude.
In prepared remarks before the Club of Frankfurt Economic Journalists, Nagel, who heads the German Bundesbank, said, ‘How big the interest rate steps will be and how far we will raise rates depends on how the data and the outlook develop. From today's perspective, I still think decisive action is called for - without demanding a specific size of the interest rate step.’
As he did on various occasions already this month, Nagel urged a start to quantitative tightening in 2023. ‘To me, there is a strong case for starting early next year to stop fully replacing maturing bonds under the APP’, he said. Doing so would underscore authorities’ anti-inflation resolve and constitute ‘another important signal’, he said.
Measures to prevent elevated inflation from becoming entrenched were essential, he said, because timidity now would court the danger of needing to tighten policy considerably more later, causing yet more harm to the economy and financial system.
‘This would be the case, for example, if inflation expectations were to become unanchored and a price-wage spiral were to occur’, he said. ‘Therefore, it would be wrong to act too hesitantly for fear of a downturn.’
Although slower economic growth would bring weaker price pressures, he said, ‘as far as we can tell at the moment, this effect alone is not enough to bring inflation back on track.’
Nagel expressed scepticism with respect to ECB staff projections, given especially high uncertainty and the fact that ‘[a]ll Eurosystem projections since mid-2020 have underestimated price dynamics.’
‘And the upside risks clearly dominate at present’, he continued, citing energy markets, the possibility of greater pass-through to consumers than usual of commodity prices, and wage developments.
Inflation in Germany would remain high next year, he said, with the annual average likely to have a seven before the decimal point.