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The European Central Bank shouldn't postpone increasing interest rates from record lows if inflation demands it, and may be able to start doing so in 2022, according to Governing Council member Joachim Nagel.
If the ECB ends net bond-buying as planned in the third quarter, “this opens up the possibility of raising interest rates this year, if needed,” Nagel, who heads Germany's Bundesbank, said Monday at an event in Hanover.
“It's very clear to me that if the price outlook requires it, we must continue to normalize monetary policy and also start raising our key interest rates,” he said. “We mustn't delay the exit from very loose monetary policy.”
The remarks follow this month's unexpected decision by the ECB to accelerate its wind-down of stimulus -- signaling it's fretting more about record inflation than risks to the euro-area economy's pandemic rebound generated by Russia's invasion of Ukraine.
But the ECB is trailing other big central banks in raising interest rates, with hikes by the Federal Reserve and the Bank of England already underway.
Nagel, whose institution traditionally represents some of the most hawkish views within the Governing Council, stressed that there are significant upside risks for inflation in the region. Last week, his Dutch colleague Klaas Knot said he doesn't rule out two rate increases in 2022, should forecasts for already surging consumer prices shift higher still.
“So far, many have worried that monetary policy could ‘choke off' the economic recovery if it tightens the reins too soon,” Nagel said. “In my opinion, the risk of acting too late is now greater.”
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