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(Bloomberg) — The European Central Bank can look though a bout of below-target inflation but must remain ready to act in either direction if needed, Governing Council member Joachim Nagel said.
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“The steady-handed policy we’ve been pursuing since summer 2025 has proved its worth and should be continued,” Nagel said. “Even if the inflation rate falls slightly below our target in the coming quarters, there’s therefore no immediate need for action.”
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Officials will monitor incoming data “closely,” the Bundesbank president said Monday in Karlsruhe, Germany. “We’re prepared to adjust our monetary-policy stance in either direction as soon as this becomes necessary.”
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The ECB expects inflation to fall short of 2% for two years but return to that goal in 2028 — making policymakers reluctant to ease further at present. While some fret that a rally in the euro will trigger a more prolonged undershoot, President Christine Lagarde has downplayed such fears. Inflation slowed to 1.7% in January.
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“There are many factors that suggest that the current interest-rate level is appropriate,” Nagel said, calling the projected inflation shortfall “short-term and small.” The ECB’s latest projections remain intact and the euro’s recent strength is “unlikely to change this assessment significantly,” he said.
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Nagel stressed that long-term price expectations are “firmly anchored,” with underlying pressures pointing to medium-term price stability and policy transmission proceeding “as expected.”
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“We take action when the medium-term projection for the inflation rate deviates significantly and persistently from our 2% target,” he said. “However, small, temporary deviations – particularly in volatile components such as energy prices – do not require a change of course if inflation expectations are anchored.”
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Earlier Monday, Lithuania’s Gediminas Simkus and Slovakia’s Peter Kazimir said any change in monetary settings would need a major deviation from the ECB’s baseline.
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—With assistance from Alexander Weber.
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