Bundesbank Bd Member Köhler-Geib: ECB Monetary Policy May Already Be in Neutral Territory

11 March 2025

Bundesbank Bd Member Köhler-Geib: ECB Monetary Policy May Already Be in Neutral Territory
Aerial view of the Deutsche Bundesbank campus in Frankfurt am Main. Photo by Florian Singer and Walter Vorjohann/Deutsche Bundesbank under CC BY-NC-ND 2.0.

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s monetary policy may now be in neutral territory, according to Deutsche Bundesbank Board member Fritzi Köhler-Geib on Tuesday.

In a speech at the Frankfurt School & OMFIF seminar, Köhler Geib said that estimates of r* being ‘notoriously uncertain’, it would not be a good idea to calibrate decisions chiefly on the basis of estimates of this value.

As to whether monetary policy is still restrictive, she said, ‘the answer is: we don’t know exactly. But it is possible that we have already entered neutral territory.’

The updated macroeconomic projections for inflation indicate that ‘the target is in sight’, she said.

‘But it is definitely too early to declare victory over inflation just yet’, she said. ‘Core inflation and particularly services inflation are still elevated. … And the further development of inflation remains highly uncertain.’

Inflation could exceed expectations, potentially due to US tariffs or unit labour costs, she said.

However, given the lag to which monetary policy decisions are subject, it would be ‘unwise to maintain a restrictive course until the target has actually been reached’, she said. ‘The brakes can be released sooner.’