ECB’s Nagel: ‘No Objections’ to More Policy Easing as Long as Not Too Fast

4 December 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Wednesday said that he had no problem easing monetary policy further next week, but that the process should be gradual.

In a speech at the European Stability Mechanism in Luxembourg, Nagel, who heads the German Bundesbank, said, ‘Given that the disinflation process is proceeding largely as currently projected, at this stage I would have no objections if we were to continue to reduce our policy rates.’

However, he said, his ‘final judgement’ would have to wait for the updated projections and his assessment of the risks to the baseline.

‘In any case, I caution against lowering the degree of restriction too hastily’, he said. ‘Interest rates should converge slowly and at a measured pace towards neutral territory.’

An additional element of uncertainty was the fact that precisely where neutrality lay was ‘difficult to pin down’, he said. That was ‘another argument in favour of taking a cautious and gradual approach.’

‘As of now, I do not see a significant risk of inflation undershooting that would warrant the Eurosystem becoming expansionary in the near future’, he added.

No major component of demand suggested that the German economy would experience a ‘significant short-term recovery’, he said. Private consumption improved in 3Q because of higher wages, but the job market had become weaker and very uncertain consumers would hold back private consumption, he said.

Euro area productivity growth was seen improving slowly with economic growth, he said, but would persist below the level of the last two decades. Still, that productivity would recover faster than expected was possible, he said. ‘It would require the widespread adaptation of new technologies such as artificial intelligence’, he said.