The European Central Bank is on course to bring inflation back to its 2% medium-term target, Bundesbank boss Joachim Nagel said Monday, but more rate hikes are needed to ensure that longer-term inflation expectation don’t become de-anchored, further entrenching current high inflation.
Nagel, largely repeating comments he has made in recent weeks the Eurosystem was on course towards 2 percent inflation. "I will use all my strength and the competence of the Bundesbank to stay on course until we reach our goal,” he added, although he noted that further 'decisive action' is required, meaning further rate hikes ahead.
“There is no question that the longer inflation remains high, the greater the risk that longer-term inflation expectations will rise significantly. This would then also solidify the high inflation,” Nagel said. His comments echoed sentiments of ECB President Christine Lagarde, who earlier Monday had told the European Parliament that further rate hikes were coming, although QT was for a later date (MNI SOURCES: ECB's Focus Shifts To Interest On Reserves).
European financial markets are now pricing in a further 75 bps of hikes from the ECB as early as the late October meeting, with a further 50 bps expected in December.