ECB Should Be Cautious About Future Moves Given Volatile Macroeconomic Environment, Nagel Says

10 July 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank is proceeding carefully, evaluating its steps and remaining flexible in the face of uncertainty and volatility in the Eurozone, Governing Council member Joachim Nagel said on Monday.

In an interview with German website FinanzBusiness, Nagel, who heads the Bundesbank, said he expected differences between inflation rates across the Eurozone to narrow as inflation declines.

The ECB was currently ‘navigating by sight’, he said. Forward guidance did ‘not fit a phase with so many uncertainties’. In the current situation, he thought the ECB ‘should not commit too far in advance’. Although interest rates would have to ‘rise high enough and remain high for long enough’ to return inflation to 2%, the ECB was currently ‘operating in a highly volatile environment’ and needed ‘to plan practically from meeting to meeting’.

Although differences in inflation rates between euro members were currently ‘even more pronounced than before’, he expected ‘that the differences will decrease again with declining inflation.’

‘In the face of persistent inflation, it is necessary to tighten monetary policy sufficiently and possibly keep it tight for a longer period’, he said.

On the outlook for monetary policy, he said: ‘ECB President Christine Lagarde has hinted at another interest rate increase in July. The extent to which interest rates need to rise depends on incoming data and further developments.’