(Bloomberg) -- The European Central Bank should be wary of reducing interest rates too rapidly given inflation hasn’t yet returned sustainably to 2%, according to Governing Council member Joachim Nagel.
While the growth in consumer prices may come close to the level officials aim to deliver in the medium term “for a time in late summer,” it’s likely to bounce back again and remain above-target well into 2025 due to persistently strong gains in services costs, Nagel said Thursday.
“We need to be careful and must not lower policy rates too quickly,” the Bundesbank chief said in a speech in Frankfurt. “We are not there yet. While our 2 % target is in sight, we have not reached it.”
The comments come after consumer prices in August rose less than expected in Germany and Spain, suggesting inflation might have also been weaker than the 2.2% forecast for the 20-nation euro zone. Eurostat will publish those data on Friday.
Nagel said policymakers will “continue to carefully monitor incoming data” that also include another gauge of wage growth in the 20-nation bloc. “We are thoroughly assessing whether these data corroborate our expectation of a timely return to our 2 % target.”
He’s speaking on monetary policy for the first time since the ECB’s summer break. With only two weeks to go until the ECB next sets borrowing costs, several of his Governing Council colleagues have already signaled that another reduction is likely on Sept. 12.
Portugal’s Mario Centeno said the upcoming decision should be an “easy” one given the economy’s deteriorating performance. Markets betting on two or three more moves this year seem to agree.
But Dutch central-bank chief Klaas Knot said Tuesday that he’s awaiting more information before deciding on whether to support a cut next month, and Austria’s Robert Holzmann has said such a step isn’t a “foregone conclusion.
Nagel picked up on the divergence but attempted to dispel perceptions of a broader disagreement. “Turning points in the interest-rate cycle are often subject to intense debate,” he said.
“When making their decisions, monetary policymakers are always faced with some degree of uncertainty,” Nagel said. “That is why a certain diversity of opinion among them as well as scope for their own judgment are considered features, not bugs.”
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