Monetary policy must remain consistent
The Bundesbank president emphasised that the European Central Bank should not decide lightly on interest rate cuts under any circumstances. On the contrary, in view of the existing data and modelling uncertainties, each action required careful consideration and caution. In Nagel’s opinion, an easing of monetary policy could be a useful strategy to provide economic stimulus, especially in times of crisis. On the other hand, Nagel also pointed out that inflation had proved to be stubborn. Monetary policy response therefore had to be firm – a balancing act.
According to Nagel, the current high level of economic and political uncertainty somewhat dampens the joy over a positive development, although the inflation rate in the euro area has fallen from 2.5 per cent early in the year to 2.2 per cent in April. This means that the European Central Bank’s inflation target is finally within reach, according to Nagel. Nevertheless, the road ahead remained rocky, as core inflation in particular had recently risen again significantly, touching the four-per cent mark. Nagel emphasised that for this reason, he would continue to advocate a monetary policy course in which the inflation rate settles at a sustainable two per cent.