Bundesbank Chief Says Rate-Setters Must Be ‘More Stubborn’ In Inflation Fight (FT)

German central bank chief & ECB Governing Council member Nagel tells the FT that “eurozone rate-setters must be “stubborn” and continue raising borrowing costs to tackle inflation, discounting fears that recent financial turmoil could further affect Europe’s banks.”

• “Our fight against inflation is not over,” he said.
• “There’s certainly no mistaking that price pressures are strong and broad-based across the economy. If we are to tame this stubborn inflation, we will have to be even more stubborn.”
• “Eurozone inflation had to drop “significantly and sustainably” from 8.5% before the Bank would stop raising borrowing costs.”
• “There’s still some way to go, but we are approaching restrictive territory,” he then went on to tell the FT that once the ECB has ceased lifting rates it would have to resist calls to cut them. “Doing so would enable “inflation to flare up again”, as it did after the oil supply shocks of the 1970s.”
• Nagel went on to downplay contagion risks within Europe’s “resilient” banking system. “We are not facing a repeat of the financial crisis we saw in 2008. We can manage this.””
• Nagel was unsympathetic towards holders of Suisse AT1 bonds noting that “those who profit from opportunities should also take their share when risks materialise. This was one of the takeaways from the global financial crisis.”
• Nagel pointed to a want to do more when it came to reducing excess liquidity in the Eurozone via the Bank’s QT scheme. This comes ahead of the review of the Bank’s QT steps in a few months.
• He also outlined a desire to consider a shrinking of the holdings under the Bank’s PEPP “at a later stage.”
• Finally, Nagel pointed to a soft landing for both the German & Eurozone economies.
• The interview continues to place Nagel at the hawkish end of the ECB spectrum.
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