The European Central Bank will have to keep interest rates at restrictive levels for an extended period to get inflation under control, Governing Council member Joachim Nagel said.
(Bloomberg) — The European Central Bank will have to keep interest rates at restrictive levels for an extended period to get inflation under control, Governing Council member Joachim Nagel said.
While it’s too soon to say how much further borrowing costs will have to rise, it’s clear that the ECB’s historic tightening campaign must continue, the Bundesbank President said in a speech in Stuttgart on Thursday.
“Interest rates will probably have to remain at a higher level for longer,” he said, with underlying inflation in the euro zone remaining a source of concern. Where exactly they will settle will be decided “based on the data.”
Officials have pushed back against expectations for borrowing costs to be lowered relatively soon after they reach their peak. ECB Chief Economist Philip Lane said last week he didn’t think it’s appropriate “to have rapid rate cuts priced in in expectations.”
President Christine Lagarde has meanwhile paved the ground for another quarter-point increase on July 27, which would bring the ECB’s deposit rate to 3.75%. Several policy makers have said that core inflation — which strips out items like energy and good — will need to slow over the summer to be able to pause hikes at the following meeting in September.
That milestone has yet to be reached, with the underlying measure even picking up again in June. Investors are betting that the ECB will take the deposit rate to 4%.
Bank of Italy chief Ignazio Visco urged his colleagues to proceed cautiously on Wednesday, saying he didn’t understand the preference for “being a bit more rather than less restrictive,” and that the ECB should have a “symmetric attitude.”
But Nagel said that measures enacted to date were impacting the financial system broadly as expected.
“The tighter lending conditions are by no means exceptional from a historical perspective,” he said. “Overall I don’t currently see any danger of ‘excessive tightening.’”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.