(Finance) – “Forecasts indicate that inflation rates will decrease in the next two years. This is encouraging. However, inflation has remained too high for too long. It is therefore too early to declare victory over inflation. The monetary policy must stay the course“. He stated it Joachim NagelPresident of the Bundesbank and therefore member of the Governing Council of the European Central Bank (ECB), at an event at the Central Bank of Cyprus.
Speaking about interest rates, he said that “we in the Governing Council currently view them at levels that will make a substantial contribution to the timely return of inflation to target. But it is It is necessary that these levels are maintained for a sufficiently long period“.
“Furthermore, this does not necessarily mean that the current rate hike cycle is over,” he continued. “Of course, it could be that if the inflation outlook worsens, we may have to raise rates again. The opposite case – a return of inflation much faster at 2% – seems much less likely to me premature to lower interest rates early or speculate on such measures“.
Nagel said himself “confident that a hard landing can be avoided. The tightness of the labor market, low levels of corporate and household debt and lively investment activity suggest that the conditions for a soft landing exist.” Furthermore, he underlined that “it could do even more damage to the economy if we were to loosening measures too soon and then having to tighten them again and even more strongly.”
In addition to rates, the central banker also recalled the ongoing budget reduction process. “Over the last twelve months the volume of our balance sheet has decreased by 1,700 billion euros, or a fifth – he said – So far the decline has been mainly driven by the expiry of the third series of targeted longer-term refinancing operations (TLTRO III) In addition, we have phased out the reinvestment of maturing assets under the Asset Purchase Programme. Now, the stock of APP assets is shrinking by around €25 billion every month. However, it seems to me It is clear that the large balance sheet will have to be further reduced significantly“.