“Further interest rate hikes will be needed to bring the inflation rate back to 2% in the medium term, and not just at the monetary policy meeting at the end of October,” Nagel said in a speech in Washington. “The ECB Governing Council must not loosen up too soon.”
Markets are currently forecasting a 75 basis point move on October 27, the same as the September hike, and few if any policymakers have publicly pushed back on these expectations.
“As monetary policy continues to normalize, the possibility of reducing the Eurosystem’s asset holdings, which amount to almost €5 trillion, will also need to be considered,” Nagel added.
Although the ECB has not provided any timetable for reducing its balance sheet, policymakers seem to advocate not starting until 2023, arguing that the bulk of the rate hikes should take place before the ECB begins to let maturity part of your debt.
