(Bloomberg) — European Central Bank Governing Council member Joachim Nagel said it’s too soon to say whether interest rates have reached their peak as policymakers still face stubborn inflation.
(Bloomberg) — European Central Bank Governing Council member Joachim Nagel said it’s too soon to say whether interest rates have reached their peak as policymakers still face stubborn inflation.
“Have we reached the plateau?” Nagel said in a speech in Frankfurt on Thursday. “This cannot yet be clearly predicted. The inflation rate is still too high. And the forecasts still only show a slow decline toward the target level of 2%.”
While borrowing costs will remain at a “sufficiently high level for a sufficiently long time,” what that means exactly will depend on data, the president of Germany’s Bundesbank added.
Nagel said the objective is clearly that inflation should return to the ECB’s target as soon as possible and that the central bank must avoid allowing monetary policy to fall “behind the curve.”
The comments come a week after the most contentious meeting yet in the ECB’s more than yearlong campaign to quell inflation. The result was a 10th straight hike in the deposit rate, to 4%, though with the euro-zone economy faltering, there were loud calls for officials to pause.
Germany, with its strong reliance on manufacturing and exports, is the only large economy in the bloc that’s expected to shrink this year. Nagel pushed back against too much pessimism, however, even if the Bundesbank expects a contraction in the third quarter.
Citing positive trends such as large order backlogs in parts of the industrial sector, stable consumption and a robust labor market, Nagel said “the description of Germany as the ‘sick man’ seems exaggerated.”
“The current weak growth is driven by special factors” including a global economic slowdown, Russia’s war in Ukraine and a decline in public spending, he said. “Once we get past the worst of these special factors, the weak growth should also ease. We expect the economy to grow again in 2024.”
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