‘No Danger of Excessive Tightening’ by ECB, Nagel Says

6 July 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank is not at risk of overtightening, ECB Governing Council member Joachim Nagel said on Thursday.

In a speech at an event in Stuttgart, Germany, Nagel, who heads the German Bundesbank, said that he could not say how much further rates needed to rise, nor for how long they would have to remain at their peak.

Commenting on the strength of monetary policy transmission, he said that today's ‘tightened lending conditions are by no means extraordinary from a historical perspective.’ For this reason, he currently saw ‘no danger of excessive tightening: the transmission is running smoothly and transmitting the monetary impulses.’

‘How high do interest rates need to be in the end to overcome high inflation? I cannot currently predict that. One thing is certain: we will decide in the ECB Governing Council based on the data available’, he said.

He echoed ECB President Christine Lagarde, saying that it was ‘unlikely that the central bank will be able to determine with full certainty in the near future that the interest rate peak has been reached.’

He did not ‘want to speculate on an exact period at this point’ that rates would have to remain at their peak.

‘But it is clear: the interest rates will likely have to stay at a higher level for a longer period’, he emphasised. It was clear ‘that our monetary policy tightening course is not yet complete’, he said.

The ECB’s latest projections showed that ‘even by the end of 2025, the inflation rate does not decrease to our medium-term target of 2%’, he said. This highlighted ‘the ongoing pressure for monetary policy action’, with a danger that inflation ‘could also be further fuelled if corporate profits and wages rise more than expected.’

‘Despite persistent underlying inflation, the peak of inflation in the Eurozone appears to have been overcome’, he commented.