In a radio interview with Deutschlandfunk on Sunday, Joachim Nagel, a key policymaker at the European Central Bank and head of Germany’s Bundesbank, stated that the ECB is in a position to take a more measured approach to monetary policy. Following a series of interest rate cuts since June last year, Nagel believes the central bank can now pause and closely monitor economic data before deciding its next move.
Key Points from Nagel’s Remarks
🔹 Policy Reached Neutral Level
Nagel emphasized that after eight rate cuts totaling two percentage points, the ECB’s key interest rates have now reached a “neutral level.” This means they are no longer restrictive—they are not actively holding back economic activity. According to Nagel, this allows the ECB to step back and carefully observe the effects of past actions before implementing further changes.
“We have brought interest rates to a level that neither stimulates nor restrains the economy. That allows us to take our time now,” Nagel explained.
🔹 Cautious and Data-Driven Approach
The ECB, according to Nagel, will now adopt a data-dependent strategy. Instead of rushing into additional interest rate cuts or hikes, the central bank wants to evaluate how the eurozone economy reacts to previous moves. Inflation has started to ease toward the ECB’s 2% target, giving policymakers room to be patient.
“We should observe the economic environment carefully, and then decide accordingly. It’s important not to act hastily,” Nagel said.
🔹 Room for Flexibility
Nagel also highlighted that the current monetary setting gives the ECB “maximum flexibility”. The bank is no longer operating under the same pressure it faced when inflation was soaring, and thus, it can afford to wait for clearer economic signals before shifting its stance again.
🔹 Inflation and Growth Outlook
While inflation in the eurozone has shown signs of stabilization, growth remains fragile. The ECB had previously responded to the slowdown and disinflation by gradually easing rates. Nagel noted that maintaining price stability remains the bank’s core mission, but it must now balance that with the evolving outlook for economic growth, labor markets, and global risks.
Conclusion: A Pause for Reflection
Nagel’s comments suggest that the ECB is entering a wait-and-see phase, relying more on economic indicators and less on predetermined policy paths. While further changes to interest rates remain on the table, they are not urgent. Instead, the bank is signaling that it will prioritize stability and adaptability in the coming months.
For markets and analysts, this reinforces the view that the ECB is moving toward a more measured and strategic approach, aiming to support recovery without risking a resurgence of inflation or causing unnecessary disruptions to financial stability.
