ECB’s Nagel: Cannot Yet Be Sure Whether Interest Rates Have Hit Their Peak
21 September 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Thursday said that still-high inflation meant that it could not be said for sure whether ECB interest rates had peaked.
In a speech at a banking conference posted to the website of the German Bundesbank, which he heads, Nagel said that the ECB was ‘facing a stubborn inflationary environment’, which is why it hiked interest rates last week.
‘Have we reached the plateau?’ he asked rhetorically. ‘This cannot yet be clearly predicted. The inflation rate is still too high. And the forecasts still show only a slow decline towards the target value of 2%.’
Rates would have to remain high enough for long enough, and ‘[w]hat this means exactly cannot be said yet: it depends on the data’, he said. ‘But the goal is clear: That the inflation rate falls to 2% as soon as possible.’
Euro area headline inflation was not retreating to a level consistent with price stability ‘at the desired pace’, he said, and despite the recent decline of core inflation, it ‘remains stubbornly high and is only expected to fall gradually, because it is increasingly being driven by domestic economic factors.’
Although Germany’s economy is going through a soft patch, domestic inflation is also ‘still far too high’, he said.
‘A look at core inflation, which does not take energy and food into account, shows how persistent inflation is in this country’, he said. ‘We only expect core inflation to be noticeably weaker in 2024 and 2025.’