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ECB Should Be Cautious and Not Rush Further Cuts, Nagel Says

(Destatis)

(Bloomberg) -- The European Central Bank can afford to take a careful approach to lowering interest rates and officials should keep paying close attention to incoming information, according to Governing Council member Joachim Nagel.

“Our data-dependent approach has proven its worth, especially in view of the prevailing uncertainty,” the Bundesbank president said Wednesday in Frankfurt. “In December, the Governing Council will have a new economic projection. This will show us whether we are still on track with regard to inflation developments. My advice is to remain cautious and not to rush.” 

In a lecture honoring the institution’s former president Karl Otto Poehl, Nagel also said that “clear communication” will help return price growth to the 2% target. 

His remarks follow a string of comments from policymakers showing increasingly divergent views not only on the speed and extent of further moves, but also on how to communicate the ECB’s intentions and risks to the inflation outlook.

Hours earlier, ECB Executive Board member Isabel Schnabel said that a “gradual approach to removing policy restriction remains appropriate,” adding that she sees no need to take borrowing costs to a level that stimulate the euro area’s economy.

Investors and economists are expecting a series of quick reductions to come amid a faster retreat in inflation and recent signs of a softening of the economy. 

Markets pared bets after figures earlier on Wednesday showed that the euro-area economy performed surprisingly well in the third quarter and inflation in Germany ticked up more than expected in October.

Euro-area inflation accelerated in October due to the impact of volatile energy costs, Nagel said ahead of a report due Thursday. He also highlighted that price growth in the services sector — which only slowed to 3.9% in September — remains a concern. 

“If we look beyond the monthly ups and downs, we can see that price stability is no longer far off, but we still have some way to go,” he said.

His French counterpart — Francois Villeroy de Galhau — agreed, saying that the ECB hasn’t yet reached its inflation target, even though it’s now in sight.

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