MNI BRIEF: Nagel Sees 50 or 75bps ECB Hike In December

The European Central Bank could raise interest rates by 50 or 75 basis points at its December meeting but it is too early to speculate about which of the two possibilities it will choose, Bundesbank President Joachim Nagel said in an event in Madrid on Thursday.

The German central banker said the decision will depend on economic data and pointed out that the ECB still has a “huge gap” to cover to bring inflation down to the 2% target, with real interest rates still negative.

When the ECB contracts its balance sheet, Nagel said it would make more sense to reduce holdings of bonds acquired under its Asset Purchase Programme, rather than under other programmes, due to their maturity dates. Quantitative tightening should start next year, he said.

Asked about recent financial turmoil in the United Kingdom over former PM Liz Truss's spending plans, Nagel said it was a lesson on the importance of coordination between monetary and fiscal policies and central bank independence in the current context of higher inflation.