Bundesbank President Joachim Nagel has signaled a preference for a pause in interest rate hikes ahead of the European Central Bank’s (ECB) upcoming policy decision on July 24th. In an interview with Handelsblatt, Nagel emphasized the need for a “steady hand” in monetary policy at the present time.
He highlighted the unpredictable impact of the ongoing geopolitical landscape and the trade conflict with the United States on price stability. The ECB has raised the key deposit rate across the Eurozone in eight steps since mid-2022, bringing it to 4.5%. Inflation currently stands at 2.0%, a level considered optimal by the ECB.
However, the ongoing trade conflict remains a significant source of uncertainty. Nagel stated that “customs uncertainty is burdening financial markets and harming economic development”. This issue is expected to be a key topic of discussion at the upcoming G20 finance ministers and central bank governors meeting in Durban this weekend.
Nagel underscored the EU’s objective of reaching a “swift” agreement with the United States, but cautioned that this should not be achieved “at any cost.
Financial markets currently anticipate a further interest rate adjustment by the ECB at its September meeting. At that time, the central bank will also release its routine projections regarding inflation and economic growth. Nagel suggested that September would likely be a suitable time to “re-evaluate” the situation.