The president of the Bundesbank says the European Central Bank must continue to raise interest rates forcefully and should begin allowing its excessive holdings of government debt to mature at the start of 2023.
Since July, the ECB has raised interest rates by an unprecedented 200 basis points, but a slowing in the rate of hikes is expected after the bank claimed “substantial progress” in policy tightening following 75 basis point increases in September and October.
Bundesbank chief Joachim Nagel said in a speech, “We must resolutely raise our key rates further and adopt a restrictive stance. We cannot stop here. Further decisive steps are necessary.”
At 1.5%, the ECB’s deposit rate is at the lower end of the generally acknowledged “neutral” range of 1.5% to 2%, which neither stimulates nor inhibits economic growth.
Dutch central bank chief Klaas Knot struck a more dovish tone, saying that further rate hikes would still be necessary but that the pace of increases should slow.
“As the stance of monetary policy tightens further, it will become more likely that the pace of increases will slow,” he said. “I expect us to reach broadly neutral territory at next month’s policy meeting.”
Christine Lagarde, the head of the ECB, said that the wind-down should be “measured and predictable,” implying a decision has already been made and only the manner of its implementation is up for discussion.
The markets anticipate a hike to 2% in December, followed by incremental jumps to 3% by next spring.