ECB’s Nagel: In Favour of Cutting Interest Rates in June

17 April 2024

By Aurėja Bobelytė – VILNIUS (Econostream) – European Central Bank Governing Council member Joachim Nagel said Wednesday that if incoming data did not surprise, he would support cutting interest rates in June.

In an interview with Wirtschaftswoche, Nagel, who heads the German Bundesbank, said, ‘If prices and the economy develop as expected, I would be in favour of cutting the key interest rates in June’.

It was important to closely monitoring new information before making definitive decisions regarding rate cuts, he emphasised.

‘[T]he latest US data serve as a reminder that inflation will not simply return to target by itself. The ECB Governing Council was therefore correct not to commit to a rate cut in June’, he said.

Even though inflation rates have been declining, Nagel warned that there were risks linked to the tensions in the Middle East, oil and energy prices as well as wage developments.

‘For the euro area, we currently expect wages to rise by 4.5% this year. If wages rise more sharply than expected, price pressures could persist for longer, especially for services. It is therefore not yet entirely clear whether the inflation rate will return to the target of 2% next year and then remain at that level’, he said.

According to Nagel, broader economic transformations, such as the transition to a green economy and global trade tensions, could influence the natural rate of interest in the coming years.

‘That is just one reason why I think the ECB is unlikely to push its key interest rates back down to 0% any time soon’, he said.