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Economy 51 minutes ago (2022-08-30 12:46pm EST)
© Reuters. FILE PHOTO: Bundesbank President Joachim Nagel speaks during a press conference after the G7 summit in Koenigswinter, near Bonn, Germany, on May 20, 2022. Reuters/Benjamin Westhoff
(Reuters) – The European Central Bank must act decisively to curb inflation, Bundesbank President Joachim Nagel said on Tuesday, with policy They all called for another big rate hike next week.
The ECB raised its deposit rate by 50bps to zero last month, and the only real question about September seems to be whether the bank should raise rates by 50bps or 75bps .
While Nagel did not comment on the exact magnitude of the rate hike, he advocated decisive action and emphasized the benefits of raising rates earlier.
“Monetary policy must respond decisively to maintain the credibility of the inflation target,” Nagel said. “Data from multiple countries show that raising interest rates earlier or earlier reduces the risk of a painful recession.”
Many policymakers have said that 75 basis points should be on the table, while others, including board member Isabelle Schnabel and Bank of France governor François Villeroy de Garau, have called for a “strong” or “significant” action.
“In my view, a larger rate hike would reduce the risk of runaway inflation expectations,” Nagel said.
Euro zone inflation is expected to hit 9% this month and could rise further above 10% as a surge in energy prices raises the risk of a higher reading.
Nagel also countered the argument that the growing likelihood of a recession in the coming months due to high energy prices should slow down the ECB’s pace.
“We shouldn’t put off further rate hikes because of fears of a possible recession,” he said. “Inflation will not return to the central bank’s inflation target on its own.”
But he said longer-term inflation expectations still appear to be anchored.
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