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ECB's Nagel Signals Support for September Rate Hike
(MENAFN) European Central Bank Governing Council member and Bundesbank President Joachim Nagel has backed the case for another interest rate increase, warning that euro-area inflation remains significantly above the ECB's medium-term target.
In an interview with a French newspaper on Tuesday, Nagel said financial markets were accurately anticipating the central bank's next move ahead of its Sept. 10 policy meeting.
"Markets are pricing in a probability of more than 95% that we will raise interest rates at our September meeting, and I would say that the markets have a rather good understanding of how we are likely to respond at this stage," he said.
The ECB is broadly expected to increase its deposit facility rate by 25 basis points to 2.50%, following a quarter-point rate hike in June.
Fresh inflation data reinforced pressure for further tightening. Eurostat reported Tuesday that annual consumer inflation across the euro area rose to 3.3% in August, up from 2.9% in July and marking its highest reading since September 2023.
"Inflation is not close to our medium-term target," Nagel said. "It stands at around 3% rather than 2%. And according to the June projections, inflation will return to 2% over the medium term only if interest rates are higher."
Despite his support for a September increase, Nagel avoided signaling what the ECB might do afterward. He cited volatile energy prices, swings in financial markets and growing uncertainty as reasons for maintaining a meeting-by-meeting approach.
"Our meeting-by-meeting approach has served us well in the past and will certainly do so in the future," he said.
Nagel acknowledged that higher interest rates cannot directly bring down oil prices. However, he stressed that monetary policy must limit the risk that elevated inflation becomes embedded in wages and spreads across the wider economy.
He warned that prolonged inflation could increase the likelihood of so-called second-round effects, particularly as trade unions may push for larger wage increases in next year's negotiations to compensate workers for rising living costs.
Responding to concerns that additional monetary tightening could undermine economic growth, Nagel pointed to the ECB's primary mandate of maintaining price stability.
He also argued that the euro-area economy has shown greater resilience than expected despite ongoing geopolitical and economic pressures. Second-quarter growth came in above forecasts, while Germany's exports and manufacturing orders have also displayed signs of strength.
Nagel said another challenge for the ECB has emerged from rising long-term borrowing costs in global financial markets. Investors, he noted, are demanding higher returns as uncertainty remains elevated, adding further complexity to the central bank's policy decisions.
In an interview with a French newspaper on Tuesday, Nagel said financial markets were accurately anticipating the central bank's next move ahead of its Sept. 10 policy meeting.
"Markets are pricing in a probability of more than 95% that we will raise interest rates at our September meeting, and I would say that the markets have a rather good understanding of how we are likely to respond at this stage," he said.
The ECB is broadly expected to increase its deposit facility rate by 25 basis points to 2.50%, following a quarter-point rate hike in June.
Fresh inflation data reinforced pressure for further tightening. Eurostat reported Tuesday that annual consumer inflation across the euro area rose to 3.3% in August, up from 2.9% in July and marking its highest reading since September 2023.
"Inflation is not close to our medium-term target," Nagel said. "It stands at around 3% rather than 2%. And according to the June projections, inflation will return to 2% over the medium term only if interest rates are higher."
Despite his support for a September increase, Nagel avoided signaling what the ECB might do afterward. He cited volatile energy prices, swings in financial markets and growing uncertainty as reasons for maintaining a meeting-by-meeting approach.
"Our meeting-by-meeting approach has served us well in the past and will certainly do so in the future," he said.
Nagel acknowledged that higher interest rates cannot directly bring down oil prices. However, he stressed that monetary policy must limit the risk that elevated inflation becomes embedded in wages and spreads across the wider economy.
He warned that prolonged inflation could increase the likelihood of so-called second-round effects, particularly as trade unions may push for larger wage increases in next year's negotiations to compensate workers for rising living costs.
Responding to concerns that additional monetary tightening could undermine economic growth, Nagel pointed to the ECB's primary mandate of maintaining price stability.
He also argued that the euro-area economy has shown greater resilience than expected despite ongoing geopolitical and economic pressures. Second-quarter growth came in above forecasts, while Germany's exports and manufacturing orders have also displayed signs of strength.
Nagel said another challenge for the ECB has emerged from rising long-term borrowing costs in global financial markets. Investors, he noted, are demanding higher returns as uncertainty remains elevated, adding further complexity to the central bank's policy decisions.
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