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Finance

ECB should not rush rate cuts, Nagel says

Published by Global Banking and Finance Review

Posted on January 17, 2025

Featured image for article about Finance

FRANKFURT (Reuters) - The European Central Bank should not rush to lower interest rates because inflation remains high and uncertainty great, ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB policymaker Joachim Nagel said in an interview published on Friday.

The Bundesbank president also told German financial newsletter Platow Brief that he still expected the Basel III global banking rules to be implemented both in the United States and in Europe, while he dismissed a proposal from a German politician to include bitcoin in official reserves.

The ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB has cut interest rates four times since June and is expected to continue doing so in the next six months, having seen inflation fall from double digits in late 2022 to just above its 2% target.

But Nagel called for a cautious approach given still high services inflation and a "high level of uncertainty" - a possible reference to questions hanging over global trade once Donald Trump returns to the White House next week.

"We should therefore not rush into anything on the path to monetary policy normalisation," he said.

Still, Nagel said there had been nothing wrong with the ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB discussing a bigger, 50-basis-point rate cut at its last meeting in December, adding: "That's part of it."

Nagel gave short shrift to an election proposal by Christian Lindner, former German finance minister and leader of the pro-business Free Democratic Party (FDP), to add bitcoin to Bundesbank and ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB reserves.

"This worries me because it gives the impression that an asset is being given some kind of government seal of approval," he said. "A currency reserve must be safe, liquid and transparent. None of this applies to bitcoin."

Nagel also said global rules designed to make banks safer would be applied "on both sides of the Atlantic" even after they were watered down by the U.S. Federal Reserve and might even be scrapped under Trump's incoming administration.

"I assume that Basel III will be finalised on both sides of the Atlantic," he said. "It is important that we in Europe speak with one voice."

Earlier on Friday, the Bank of England said it would delay its implementation of the rules, which include tougher bank capital requirements, by one year until January 2027.

(Reporting By Francesco Canepa; Editing by Gareth Jones)