(Bloomberg) -- European Central Bank officials would be “well advised” to stop openly discussing their preferences for interest rates amid sticky inflation and elevated uncertainty, according to Governing Council member Joachim Nagel.
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Policymakers also shouldn’t hurry to ease monetary policy further, the Bundesbank chief said Tuesday. While there’s confidence that inflation will retreat to 2% sometime this year, recent information signals caution is still needed.
“There’s nothing to be gained from publicly speculating on where we might stand, in terms of our interest-rate policy, in the summer or at the end of the year,” Nagel said in a statement accompanying the German central bank’s annual report.
“In view of the latest developments on the inflation front, and given the high level of uncertainty, it’s wise to take one step at a time in terms of monetary policy. And not to rush into further interest-rate cuts.”
With the ECB close to delivering 2% inflation, opinions on the Governing Council are diverging over how much more policy needs to be loosened. Some officials are talking about halting or pausing rate cuts amid lingering price pressures, while others expect three more reductions by mid-year to prop up the region’s ailing economy.
Nagel argued that the ECB should remain true to its existing data-dependent, meeting-by-meeting approach, without pre-committing to a particular rate path.
“The outlook for prices is fairly encouraging,” and inflation reaching its target in the coming months “would allow us on the Governing Council to lower the key interest rates further,” he added. “However, the persistently elevated core inflation and the undiminished strength of services inflation warrant a degree of caution.”
The Bundesbank reported a loss of €19.2 billion ($20.1 billion) for 2024 — its first since the 1970s — after it released the remainder of its reserves. The operating shortfall was similar to last year’s, when the central bank used up almost all of its provisions and the money it had set aside to make up for it.
Nagel said losses have probably peaked and should be lower in the future. They’ll be carried forward and offset by future profits.
The ECB itself announced a record loss of almost €8 billion last week and said it may incur other, smaller ones in the coming years before eventually returning to profit. It stressed that it can “operate effectively and fulfill its primary mandate of maintaining price stability regardless.” The Bundesbank made similar remarks.