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(Bloomberg) — European Central Bank Governing Council member Joachim Nagel refused to rule out the possibility of continued interest rate increases beyond the summer.
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Asked in an interview with Bloomberg TV whether borrowing costs will continue to rise in September, the Bundesbank chief said, “There is nothing off the table.”
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“Inflation remains very steady,” Nagel said Thursday in Niigata, Japan, where he is attending a meeting of the Group of Seven finance chiefs. He described price gains as “a very intractable phenomenon”.
The European Central Bank confirms that interest rates will rise further after slowing the pace of its unprecedented tightening campaign last week. Most economists expect two more quarter-point steps to raise the filing rate to a peak of 3.75% in July, though officials are beginning to accept that increases may be needed for longer, according to people familiar with the debate.
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Money markets set a probability of around 90% for a quarter point increase in June and fully price that increase in by July before seeing the deposit rate peak at less than 3.70%.
Nagel said borrowing costs are close to restrictive levels for the 20-country eurozone economy, but are not there yet. Whether another move materializes in September will depend on the impact of the 375 basis points of tightening so far.
Regardless of the outcome, Nagel said rates should remain high once they peak.
“When there comes a point where we can more or less stop prices going up, I have to believe we have to stay there for a while,” he said. This will allow the administrators to “see if we are really successful or not”.
Core inflation – which Nagel described as “very sticky” – is increasingly becoming a focus of ECB policymakers.
Asked how long it would take for this measure – which removes volatile elements such as food and energy – to get to 2%, Nagel said, “It will take at least a year and a half to see numbers close to our target – so we have to be patient here.”
— With assistance from Jana Rando and James Hiray.
(Market developments in the fifth paragraph, core inflation in the ninth)