The European Central Bank (Ect) It should not be committed to a specific course of interest rates, as the US trade policy and the situation in the Middle East blur the prospects, according to a member of the ECB’s Board of Directors and its president Bundesbank Joakim Nagel.
“The biggest factor of uncertainty about the future course of our Monetary Policy is – in addition to developments in the Middle East – undoubtedly the unpredictable US trade policy,” the Bundesbank president said today (23.06.2025).
Speaking to the Walter Eucken Institute in Freiburg, Germany, ECB member Nugel said that “not only is it not clear how strong the impact could be, but it is even uncertain” if President Donald Trump’s tariff boost will be.
“Therefore, it is wise if we – as members of the Board of Directors – continue to be flexible and dependent on the facts,” Nagel said. President Christine Lagarde said the relaxation campaign is coming to an end, after officials reduced the basic deposit rate to 2% from 4% in one year. While some suggested that the cycle may already be over, others said that additional reductions may be needed to support growth.
The ECB expects the economy gaining momentum in the coming years, but uncertainty is increased and the recent escalation of wars in Ukraine and the Middle East increases the downward risks. On Monday, Israel intensified attacks on Iran, even when Tehran promised to repay US blows to its nuclear facilities over the weekend.
Nugel, who is traditionally considered one of the most hawk members of the Board of Directors, said that “we are currently in good position on interest rates to expect further developments in inflation”.
This echoed Lagarde’s comments, which earlier on Monday reiterated in the European Parliament that the ECB was in good position to face the “extremely high” economic and political uncertainty. ” Answering the question about whether the current reduction in the ECB balance sheet clashes with a reduction in borrowing costs – as some policy makers suggest – Nagel said he was not seeing a problem.
“The gradual abolition of property market programs should only have minor impact on monetary policy,” he said, adding that the ECB is already taking into account the impact of so -called quantitative tightening, as it is reflected in the medium and long -term market interest rates.
“The Eurosystem is currently directing the attitude of its monetary policy through key interest rates,” he said. “Therefore, we can continue to passively abolish monetary policy market programs without worrying.”