Nagel signals an ECB rate rise on 10 September as inflation runs near 3 per cent against a 2 per cent target
Bundesbank president Joachim Nagel told Le Monde that markets are pricing a more than 95 per cent probability of a rate increase at the European Central Bank's meeting on 10 September. Inflation runs near 3 per cent rather than the 2 per cent target, Nagel said, and the June projections return it to 2 per cent only on higher rates. Euro area inflation reached 3.3 per cent in August. Nagel gave no direction beyond the September meeting and said rising global bond yields complicate the situation.
Economics & Markets··Evening
Nagel points to a rate rise at the 10 September meeting
Joachim Nagel told Le Monde that markets are pricing a more than 95 per cent probability of a rate increase at the European Central Bank's meeting on 10 September. The Bundesbank president added that markets have a rather good understanding of the bank's likely response at this stage. Business Insider España reported that Nagel indicated the ECB would raise rates at the 10 September meeting while staying cautious about later steps. The same report said central bankers broadly expect credit to become more expensive again after the quarter-point rise delivered in June. Nagel said the meeting-by-meeting approach has served well in the past and would continue to do so. He said he preferred not to give any specific direction beyond the September meeting.[1], [2]
Inflation runs near 3 per cent against a 2 per cent target
Nagel said inflation is far from the medium-term target, standing at around 3 per cent rather than 2 per cent. On the June projections, inflation returns to 2 per cent over the medium term only if interest rates are higher. Euro area prices rose to 3.3 per cent in August, a reading Business Insider España traced to data released on Tuesday. The same report described euro area activity as more solid than expected against headwinds such as the war with Iran. Nagel said the risk of second-round effects grows the longer price rises stay elevated, as increases pass into other sectors of the economy and into wages.[1], [2]
Global yields rise while mortgage expectations harden
Nagel said the rise in global bond yields complicates the situation. Market participants confronted with a lot of uncertainty are demanding higher yields worldwide; the ECB Governing Council takes those developments into account, Nagel said, and the best thing it can do is focus on price stability in the euro area. Business Insider España highlighted that the increase would make mortgages more expensive across the euro area, and reported that EFPA España founder Josep Soler foresees tightening of up to 50 basis points before 2027. Soler reads euribor moving towards 3 per cent as a shift in expectations rooted in inflation. Nagel said oil and gas prices keep going up and down, that financial markets are very volatile, and that the picture is uncomfortable from a monetary policy perspective. Germany is on track for roughly 1 per cent growth this year, which Nagel said is quite a bit better than the Bundesbank's June forecast.[1], [2]
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