Bundesbank President Joachim Nagel says oil has become a more important gauge for European Central Bank policy over the past four years and that the ECB cannot rule out moving rates into mildly restrictive territory. He also said core inflation remains too high, even though second-round effects from energy costs have not yet emerged.
Nagel, who sits on the ECB's Governing Council, said oil was far from the only indicator the bank monitors but that its relevance had clearly grown over the past four years. Speaking at a financial event in London, he said the council has to watch energy prices and factor them into policy decisions.
Rates stay open to a mildly restrictive shift
Nagel said ECB rates were still in neutral territory, a level that neither stimulates nor restrains the economy. He added that he could not exclude the need to move into mildly restrictive territory, keeping further tightening on the table if price pressures persist.
On inflation dynamics, Nagel said he has so far seen no significant second-round effects, the process by which an initial energy shock feeds through into wages and wider prices. He stressed, however, that he was not relaxed, pointing to core inflation as still too high. He also said he was not especially concerned about developments in the labour market.
ECB leans on ambiguity over guidance
Nagel described the ECB's approach as sitting between constructive ambiguity, where a central bank avoids committing to a set path, and explicit forward guidance. He said he did not see much uncertainty in markets about what drives the council's decision-making.
He also addressed the Transmission Protection Instrument, the ECB's tool for countering disorderly moves in euro area bond markets. Nagel said he hopes it never has to be activated and that it is not designed to address individual countries' fiscal challenges.
The remarks place energy prices at the center of the ECB's policy debate. Oil's path and upcoming inflation readings will likely shape how hawkish the council leans at coming meetings.
Source: Investinglive
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