ECB’s Nagel: Hiking Won’t End in March; Don’t Expect Rate Cuts Soon

7 February 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Governing Council member Joachim Nagel pushed back on Tuesday against suggestions that the European Central Bank’s hiking cycle could end after its pre-announced 50bp hike in March, and dismissed the possibility of rate cuts anytime soon.

In an interview with German business daily Börsen-Zeitung, Nagel, who heads the Deutsche Bundesbank, said that as things stand he did ‘not see that our work is done with the interest rate step in March: in my opinion, we need to raise interest rates beyond that’.

‘No one should underestimate how serious the Governing Council is about getting inflation back to 2% quickly’, he said, adding that the ECB’s latest monetary policy statement was ‘a robust announcement that points beyond the March meeting’.

Asked about market speculation that the ECB could cut its key interest rates in 2023, he replied that cuts ‘are not at all on my agenda for the foreseeable future.’

Noting that real interest rates are still negative, he said ‘to me, this [level of real interest rates] does not look like restrictive territory’. From his current perspective, ‘further significant interest rate hikes are needed’ he argued, though moving forward ‘step by step’ was appropriate.

The recent drop in headline inflation in the euro area had ‘almost been celebrated by some’ he said, which he ‘cannot understand’.

‘It would be dangerous to think that we are already through and that the inflation problem is settled’, he said. Inflation ‘has not yet been overcome’ in the Eurozone.

Recent rises in core rates show ‘that inflation is increasingly eating its way through the economy and gaining breadth’, he said. Policymakers cannot put up with such high rates of core inflation, Nagel warned, saying that central bankers must ‘not slacken off now under any circumstances, even if energy has recently become cheaper’ and driven down headline inflation.

The Bundesbank head also called for the pace of QT to increase ‘from July onwards’, saying that the current pace of €15 billion euros per month ‘should not be the end of the line.’