Bundesbank's Nagel joins ECB chorus backing December rate hike

Bundesbank's Nagel Backs Likely ECB Rate Hike in December Amid Inflation Worries

ECB Policy Outlook and Inflation Concerns

Bundesbank President Nagel's Position

FRANKFURT, Nov 3 (Reuters) - Another European Central Bank rate hike in December seems almost inevitable, Bundesbank President Joachim Nagel said on Tuesday, joining an already long list of policymakers backing the move, which would be the bank's third this year.

The ECB left its key deposit rate on hold at 2.5% last week on the premise that rapid inflation is not getting embedded but policymakers from different backgrounds and convictions have argued that the pause was likely temporary.

Nagel's December Rate Hike Outlook

"From today's perspective, an interest rate hike in December is very likely necessary," Nagel, a crucial voice on the ECB's Governing Council, said in a speech in Berlin. "There seems to be little alternative to an interest rate hike unless the inflation outlook improves significantly."

Market Expectations and Inflation Projections

Investor Sentiment on Rate Hikes

While a December move is not fully priced in, financial investors see between two and three rate hikes over the coming year, as they expect inflation to hold above the 2% target for years to come.

ECB's Adverse Scenario and Price Pressures

Nagel argued that inflation was approaching the ECB's 'adverse' scenario and price pressures would be higher than outlined in the bank's September projections. 

Other Policymakers' Views

Bulgarian Central Bank Chief's Assessment

Bulgarian central bank chief Dimitar Radev, speaking earlier in the day, came to a similar conclusion. 

Radev's Take on Inflation and Policy

"But the inflation outlook has deteriorated since September, and this must be reflected in our assessment of the appropriate monetary policy stance," Radev said in a speech in Sofia. "The October pause was a decision to assess the evidence, not a conclusion that monetary policy tightening is over."

ECB's Inflation Forecasts and Challenges

Short-Term and Long-Term Inflation Trends

The ECB sees inflation above 4% in the coming months, more than twice its target, falling back rapidly from early spring, when high year-earlier figures get knocked out of the time series. 

ECB's Mandate and External Factors

While the ECB was 'quite far' from achieving its price stability mandate, Nagel also acknowledged that the inflation surge was primarily due to energy, over which the ECB has no control, and there was little evidence this increase was setting off second-round effects.

(Reporting by Balazs Koranyi; Editing by Xevi Fontdegloria)