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Nagel Says ECB ‘A Good Way Off’ From Where Rates Should Be

·2 min read
Nagel Says ECB ‘A Good Way Off’ From Where Rates Should Be

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European Central Bank interest rates will need to rise a lot more to get inflation under control, according to Bundesbank President Joachim Nagel.

“We’re still very far away from interest rates that are at a level that is appropriate given the current state of inflation,” Nagel said on Saturday. “More needs to happen, rates have to go up -- by how much is still to be determined,” he said. “We’re still a good way off” from the neutral rate, the level at which monetary policy neither constricts nor stimulates.

The ECB earlier this month tightened policy by a historic 75 basis points and officials are prepared to deliver another jumbo interest-rate increase at their October meeting if the inflation outlook warrants an additional big step, according to people familiar with the debate.

Speaking at the German central bank’s open day in Frankfurt, Nagel -- one of the ECB’s more hawkish rate setters -- acknowledged the economy will slow but said he doesn’t expect a severe economic downturn.

“I don’t see a hard recession,” he said. “It doesn’t look like it will be too terrible.”

Speaking in an interview in Ireland, ECB Chief Economist Philip Lane told broadcaster RTE a mild euro-area recession can’t be ruled out. He also predicted “several” more rate hikes.

Winter Worry

While saying that annual consumer-price growth may peak at 10% in December and warning that Germany faces a “tough winter’ with the risk double-digit inflation rates, Nagel indicated he’s convinced that the situation will get better.

“I’m confident that we will be able to put the difficult winter behind us and then see falling inflation rates again,” he said.

Nagel also said that the ECB’s next actions will depend on data and highlighted policy makers commitment to get inflation back to the institution’s 2% goal.

“We’re very aware of our responsibilities and will do whatever is necessary to bring inflation down again -- I can’t promise miracles,” he said. Getting there “won’t be a sprint, it may be a middle-distance run, I just hope it isn’t a marathon.”

(Updates with Lane comment in sixth paragraph)

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