European Central Bank Governing Council member Joachim Nagel said it’s definitely too early to call time on the euro zone’s most aggressive bout of monetary tightening.
(Bloomberg) — European Central Bank Governing Council member Joachim Nagel said it’s definitely too early to call time on the euro zone’s most aggressive bout of monetary tightening.
“We are not pre-committed to future rate hikes, but we are committed to delivering price stability,” the Bundesbank president said Friday in a speech in Washington. “Thus, it’s certainly far too early to stop raising rates or even think about lowering them.”
The remarks chime with the German official’s fellow interest-rate-setters in Frankfurt as hopes grow that the recent banking turmoil won’t have a major negative impact on the euro area.
With inflation — particularly underlying price pressures — still elevated, some policymakers are mulling a fourth consecutive half-point rate increase when the ECB next sets borrowing costs on May 4.
Nagel said tightening to date — 350 basis points since last summer — has yet to be completely felt beyond money and capital market rates. Describing the major part of the impact on inflation as “still in the pipeline,” he estimated:
- The degree of pass-through in loan rates is about 80%
- On loan volumes, it’s approximately 40%
- For GDP, it’s close to 30%
- For inflation, it’s roughly 20%
“Risks to price stability are currently tilted to the upside,” Nagel said. “On that note, it’s not a given that we will return to price stability over the medium term.”
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