ECB’s Nagel: ‘Still Some Way to Go, But We Are Approaching Restrictive Territory’

22 March 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Wednesday said that the ECB had to continue hiking interest rates but that monetary policy was getting close to the point of being restrictive.

In an interview with the Financial Times, Nagel, who heads the German Bundesbank, said, ‘Our fight against inflation is not over.’

‘There’s certainly no mistaking that price pressures are strong and broad-based across the economy’, he was quoted as saying. ‘If we are to tame this stubborn inflation, we will have to be even more stubborn.’

Headline inflation had to subside ‘significantly and sustainably’ from current levels and core inflation had to ‘decline sufficiently’ for the ECB to put an end to the hiking cycle, he said.

‘There’s still some way to go, but we are approaching restrictive territory’, he said.

The terminal rate, once reached, would have to be maintained, as loosening policy would allow ‘inflation to flare up again’, he cautioned.

The pace at which the ECB reduces its balance sheet should increase, he said. ‘We should do more’, he said. Reducing the pandemic emergency purchase programme portfolio could be considered ‘at a later stage’, he suggested.

Nagel expressed confidence about the economies of Germany and the Eurozone. ‘I still envision a soft landing’, he said.

Though possible that banks would grow more hesitant to lend in the context of recent sector turmoil, one could not yet assume that a credit crunch was coming, he said, according to the newspaper.

The euro area’s banking system was ‘resilient’, he said. ‘We are not facing a repeat of the financial crisis we saw in 2008’, he said. ‘We can manage this.’