ECB Governing Council, Joachim Nagel, Bundesbank head, posed a crucial question in his speech in Frankfurt, “Have we reached the plateau” on interest rates? He answered by stating that it “cannot yet be clearly predicted”. He continued, elaborating that “the forecasts still only show a slow decline toward the target level of 2%.”

Nagel’s comments hinted at the continuous monitoring of economic indicators, suggesting that while borrowing costs are expected to “remain at a sufficiently high level for a sufficiently long time,” the exact interpretation hinges on the incoming data.

Addressing concerns about Germany’s economic health, he remarked that characterizing Germany as the ‘sick man’ “seems exaggerated.” He attributed the present sluggish growth to specific influences such as the global economic deceleration, Russia’s conflict with Ukraine, and reduced public expenditure. Offering a silver lining, Nagel projected, “Once we get past the worst of these special factors, the weak growth should also ease. We expect the economy to grow again in 2024.”

On the other hand, Latvia’s central bank chief, Martins Kazaks, highlighted the structural nature of recent oil price hikes. He pointed out, “The recent oil price increase in my view is not a temporary or transitory, it’s very much a structural issue.” Such dynamics, according to Kazaks, present heightened inflation risks. Regarding the anticipated rate cuts, he expressed skepticism about their timing, asserting, “I think expecting rate cuts mid next year is somewhat too early.”

In an interview with BFM television, ECB Governing Council member Francois Villeroy de Galhau emphasized the pivotal role of interest rates in curbing inflation, which he starkly referred to as a “disease.” Drawing a clear line of action against inflationary pressures, he advocated for maintaining a firm grip on the existing measures.

Villeroy underscored the effectiveness of the current strategy by stating, “Inflation is a disease and rates are the medicine. The medicine is starting to work.” T

Diving into specifics, he highlighted the appropriateness of the 4% deposit rate level, voicing his opinion that this rate should be upheld for a “sufficiently long time” to ensure that it effectively counters inflationary trends.

Looking to the future, Villeroy elucidated that once the inflation rate cools down to hover around 2% target, it would then be feasible to consider a reduction in ECB rate.

ECB Governing Council member and head of Slovakia’s central bank, Peter Kazimir, indicated in an opinion piece that the possibility of further rate hikes remains on the table. Also, it’s premature to bet on the timing of the first rate cut.

Kazimir emphasized that the forthcoming March forecast will be a decisive factor in ascertaining whether the inflation target is within reachable limits, stating, “Only the March forecast can confirm that we are heading unequivocally and steadily towards our inflation goal.”

“That is why I cannot rule out the possibility of further rate increases today,: he added.

Elaborating on the current stance of the policy rates, Kazimir metaphorically commented, “Assume we’re at the top. If so, we may have to stay camping here for quite some time and spend the winter, spring, and summer here.”

Hence, it would be “premature to place market bets on when the first interest rate cuts will occur.”

Meanwhile, he did leave the door open for potential adjustments in the bank’s quantitative tightening measures, contingent on economic data. He noted, “As soon as incoming economic data and analyses confirm that further tightening is unnecessary, I see room for a debate about adjusting the pace of our quantitative tightening.”