ECB’s Nagel: 'Interest Rate Cuts Are Premature at the Current Juncture'

2 February 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Friday said that it was not yet the moment to reduce interest rates as more clarity on the price outlook was needed.

In an interview with German daily Frankfurter Allgemeine Zeitung, Nagel, who heads the German Bundesbank, said, ‘We mustn’t jeopardise what has been achieved by reducing the dose too early. That’s a challenge. As I see it, the price outlook still isn’t clear enough: that’s why interest rate cuts are premature at the current juncture.

The economic effects of geopolitical tensions, along with wage developments, were sources of uncertainty and the reason why ‘policymakers would be well advised to make decisions based on actual data and the current outlook’, he said.

‘Both profits and wages can have a strong impact on the inflation rate; that’s something we need to bear in mind’, he said.

Asked about market expectations, he said that they were not a major concern for him, but added that ‘if there is a mismatch between financial conditions and the inflation outlook, it becomes more difficult to maintain price stability.’

The fact that inflation was moving downwards in 2024 was good news, he said.

‘[We] are confident that our monetary policy is working and will bring inflation back to its target of 2%. Inflation has been decreasing significantly, and that’s a good sign’, he said. ‘It also looks as though a soft landing will be possible in the euro area’.