ECB needs several more rate hikes, Bundesbank chief Nagel says By Reuters

FRANKFURT (Reuters) – The European Central Bank will need to raise interest rates “several” more times and then must hold rates steady for some time before inflation is fully tamed, Bundesbank President Joachim Nagel said on Tuesday.

The ECB has lifted rates by a combined 375 basis points since last July and promised further policy tightening to combat runaway price growth, but most policymakers agree that the central bank is now in the final stage of policy tightening after the fastest rate hikes in its 25-year history.

“Monetary policy tightening has not yet reached its end,” Nagel said in a speech. “Several more interest rate steps will be needed to reach a sufficiently restrictive level, and we will then have to maintain this level for a sufficiently long time until inflation has fallen sustainably.”

On Monday, French central bank chief Francois Villeroy de Galhau said that rates are likely to peak by the end of this summer and the key issue is just how long they will need to stay high.

The problem is that inflation is still running at 7%, more than three times the ECB’s 2% target, and a meaningful slowdown, particularly for core goods, may not come until the autumn.

That would suggest that two or three more rate hikes may be needed, putting the ECB’s deposit rate at 3.75% or 4.00% by the end of September.

“Rest assured that I will not let up until price stability is restored,” Nagel said. “Our medium-term goal is 2%, no more and no less. And we want to achieve this goal in the near future.” 

Markets currently are pricing in another two 25-basis-point hikes and see a rate cut in early 2024, an expectation some ECB policymakers have pushed back against.