MNI BRIEF: Significant Rate Hikes Possible After March - Nagel

The ECB should consider “significant” rate hikes after March if inflation is not coming down in line with its 2% price stability target, Bundesbank boss Joachim Nagel said Wednesday. Policymakers expect to raise key interest rates by 50bps on March 16, but should incoming data shows a “clear picture” further steps may be needed, he told reporters following publication of the bank's annual report, in order to battle persistent inflation in an equally “robust, stubborn way.”

Tapering of APP reinvestments start this month, paring at a pace of EUR15BN a month on average over Q2, with Nagel firmly convinced markets will be able to digest the change, suggesting space to do more. Looking further ahead, “if you want to achieve monetary policy normality, we’d have to look at PEPP as well.”

German wage developments do currently suggest a wage-price spiral is to be expected, Nagel said, but there could still be second-round effects. Nagel declined to comment on where both the neutral rate of interest and the terminal rate might lie, but he indicated that there was still some way to go before interest rates are in restrictive territory.