(Finance) – “With three consecutive major rate hikes, we have taken important steps towards the normalization of monetary policy. But we cannot stop here. Further decisive steps are needed“. He said so Joachim Nagelpresident of the Bundesbank and then member of the executive council of the ECB, during a speech at the European Banking Congress underway in Frankfurt.
“We find ourselves in an environment with inflation projections well above our target and upside risks to inflation. In such an environment, the current level of policy rates cannot guarantee a timely return of inflation to our target by 2% – he explained – To guarantee a return to price stability, long-term nominal and real interest rates must rise sufficientlywhich is why policy rates need to rise further.”
According to Nagel, “there is still a lot of hard work to be done. Inflation is a tough nut to crack. If we want to solve (the problem, ed), monetary policy must also be tough. It would be wrong to slow down our efforts at the first vague signs of easing price pressures“.
The German banker also stressed that he believes “premature” one discussion of whether Frankfurt has already reached restrictive territory. “The policy rates have so far been increased by 2 percentage points. Even after the rate hikes, the relevant policy rate is still in the expansionary range,” she said.
“In abnormal times with double-digit inflation, a mere normalization of monetary policy may not be enough. If high inflation threatens to take root, we must decisively raise our key rates further and adopt a tightening stance,” he continued. If we don’t act decisively now, we run the risk of having to tighten monetary policy even more later on. This would put a strain on households, businesses and the financial system.
On the reduction of the stock of bonds in the belly of the ECB to the Eurosystem, the president of the Bundesbank believes that the ECB should start arReduce the size of bond holdings early next yearno longer fully reinvesting all maturing bonds.”