ECB’s Nagel: Monetary Policy Shouldn’t Let Up Too Soon; Still Have a Ways to Go

9 February 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Thursday suggested that monetary policy remained far from relaxing.

Speaking at a university in Stuttgart, Germany, Nagel, who heads the German Bundesbank, said as to when rate cuts could come, ‘A cardinal rule of monetary policy is that one does not let up too soon, and I would like to see such an error avoided in the Eurozone.’

‘At the moment, everything indicates ... that we still have a ways to go’, he said, even if the terminal rate cannot yet be known.

Inflation was ‘much too high’ and ‘broad-based’, warranting the ongoing vigilance of monetary authorities, he said.

Core inflation in particular, to which he referred more than once, was ‘very robust’ and ‘very persistent’ and had not yet begun to trend downwards, he noted.

Nagel’s presentation stated that additional rate hikes were required and that ‘decisive monetary policy action’ was needed ‘to prevent the risk of a dis-anchoring of long-term inflation expectations.’

The increase in interest rates to date was starting to make itself felt in the broader economy, he said, pointing to lending activity, especially for homebuying.

Insufficiently restrained government spending could force monetary policy to become yet tighter ‘to correspondingly compensate for the fiscal policy impulse’, he said.

Monetary policy in the Governing Council is discussed in the context of the entire euro area and not tailored to individual member states, he insisted.