ECB’s Nagel Sticks Closely to Previous Messaging: ‘We Must Not Let up Too Soon’

28 November 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Monday reiterated the importance of not letting up in monetary policy’s effort to restore price stability.

According to a speech text posted to the website of the German Bundesbank, which he heads, Nagel essentially stuck to the messaging of numerous other interventions by him this month, declaring that he would ‘continue to advocate a determined fight against inflation in the Governing Council. We have come a good part of the way along the path we have chosen - but only part of the way. We must not let up too soon.’

There were prospects of additional rate hikes, he said, in addition which it was time to deal with the ECB’s balance sheet. Given that ECB holdings keep bond yields lower than they would be, ‘there is therefore a strong case for not replacing all maturing bonds from the beginning of next year’, he said.

‘This would be an additional tightening signal underlining our determination to ensure a timely return of inflation to the medium-term target of 2%’, he said. ‘In the face of ever new highs in inflation, monetary policy needs to provide clear guidance to keep inflation expectations anchored and prevent a price-wage spiral.’

High inflation would not be gone soon, he said, with German HICP next year ‘likely to remain far too high at over 7%.’ With core euro area inflation at 5%, upward pressure on prices is therefore now broad-based’, he said.

The German economy would contract in the winter half-year, he said.